Some Mission District businesses get their SBA checks, but wonder if they should use the money

At least three Mission District restaurants have been approved for payroll protection loans from the Small Business Association, but all remain tentative about spending the money. 

“Taking on more debt is a serious thing to do. That’s why there are some nerves around this,” said Manny Yekutiel, the owner of Manny’s on Valencia Street, who also sits on the San Francisco Small Business Commission. 

He was recently approved for one of the loans and is now waiting for the money to arrive. “I don’t want interest,” he said. “I don’t want that on my head in the middle of a recovery.” 

And debt it could become, if not used quickly enough. At present, the guidelines for debt forgiveness require businesses to use 75 percent of the loan to pay employees; the other 25 percent can be used for other overhead costs, such as rent. But the clock on the two-month time period starts ticking on the day that the loan funds are disbursed into the borrower’s bank account.  So Yekutiel would have to hire back his employees and essentially pay them during May when the shelter-in-place order that has kept him closed is still in effect. 

“There’s no way that can work,” said Yekutiel.

Stephen Klein, managing director of the Restructuring and Bankruptcy practice at Bennett Thrasher LLP in Atlanta, Ga., believes that restaurants can put their employees on the payroll, whether or not they are open.

“You can have the restaurant that is closed and pays its people out of compassion,” said Klein. “Those people would otherwise get unemployment benefits, so the government is paying these people either way.”

Operators like Yekutiel have to make the human calculation of whether it is more financially prudent to bring their employees back and support them with the SBA money, or to return the funds and rehire them on reopening. Yekutiel said he wants to pay his employees with the SBA loan proceeds, but wants to ensure he does so in complete accordance with SBA guidelines, so that the loan will be forgiven. 

Monk’s Kettle, a restaurant on 16th Street, has had its payroll protection loan disbursed by the SBA, but co-owner Nat Cutler is also nervous about using it.

“I have blanket concerns about whether [the loan] will be forgiven,” said Cutler.

One of his worries is about getting all his employees on the payroll when Monk’s Kettle is operating as takeout and delivery only and cannot operate with all of his staff on-hand anyway.

“What happens if I use [the loan] for intended purposes, but we are operating as takeout, and I don’t need all these staff and I can’t pay them anyway. Do I get dinged?” said Cutler.

Probably, according to the information sheet from the U.S. Treasury’s website. It says that forgiveness is reduced if the full-time staff headcount is reduced or if wages drop by more than 25 percent for any employee that made less than $100,000 in 2019.

What’s more, the payment protection loans only cover eight weeks’ pay for his staff. 

If the business has not picked up to the point that he can rehire all his staff, the future for his employees remains uncertain.

“We have said to our staff, ‘We have you for eight weeks, and we’ll pay you as much as we can, but we can’t promise more than that, because we don’t know what the situation is going to be,’” said Cutler.

Cutler and others said that the payment protection plan is poorly suited to the needs of restaurants. He pointed out that restaurants have expenses other than rent, utilities, and payroll, which are not forgivable under the PPP.

“You need cash for other bills,” said Cutler. “For restaurants that can’t generate any revenue, this bill does little to help them,” added Cutler. Such static costs for restaurants include vendor payments for food and drink, licenses for leased equipment, payments for POS and scheduling software, and sales tax.

Shar Haddadin, the owner of The Crepe House on Valencia Street that closed in March, was recently approved for the payroll loan and had similar fears. Hiring his workers back might not make sense, he said.  

His employees are currently on, or applying for, unemployment, he said. If he begins to pay them again, unemployment benefits will stop, or the employees will become ineligible. So he asked: What happens after eight weeks, when the money runs out? 

“You have to lay them off again,” he said. 

And they’ll have to reapply for assistance.  

Laurie Thomas, the head of the Golden Gate Restaurant Association and owner of Rose’s Café and Terzo, also believes that the payment protection plans are not always suitable for restaurants. Thomas believes that in certain circumstances, restaurants should instead take advantage of a different program, the Employee Retention Credit (ERC), established under the CARES Act.

Under this program, employers are eligible to receive a tax credit equal to 50 percent of the wages of each employee, with a maximum credit of $5,000 per employee every tax quarter. This credit would first be used to pay off Social Security taxes normally taken out of employee wages, and whatever is left would be given to the business’ proprietor. 

Unlike the payroll protection loan, which can only be used to pay certain expenses during an eight-week period to be forgiven, the tax credit can be used for any purpose, including static costs not eligible to be forgiven under the PPP.

“You can use it for whatever you want,” said Thomas.

If you want to find out more about the ERC, you can read the IRS’ FAQ here.

For the time being, the Mission businesses were not quite sure what they would do. 

Haddadin, from The Crepe House, however, had a plan for what to do until the law is clearer to him:  “What I’m trying to do is take the money and sit on it.” 

Julian Mark contributed reporting. 

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