With two prominent Downtown LA restaurants to manage through the coronavirus pandemic, Emil Eyvazoff was desperately looking for a way to keep employees paid while dining rooms closed to stop the spread of COVID-19. He initially went through his longstanding relationship with a large nationally-known bank before finding he was one of millions of businesses applying for a loan from the Paycheck Protection Program (PPP), part of the federal CARES Act meant to help small businesses pay employees.
“My [larger] bank wasn’t working,” said Eyvazoff. “They have a ton of clients, and when everybody reaches out, there’s a log-jam effect. They have one department doing SBA loans and it gets flooded.” Eyvazoff acted quickly to find Live Oak, a small bank in Wilmington, North Carolina that specializes in Small Business Administration loans.
“I applied to Live Oak bank on April 9, got SBA approval on the 10th, and received the funds on April 21. When I was doing my research I was trying to find institutions that only focus on SBA. It’s like going to a [medical] specialist instead of a general practitioner,” he said. Eyvazoff hopes that sharing his strategy for finding a lesser-known financial institution can help equip LA restaurants looking to get PPP funding on the next federal aid bill, which is expected to pass today.
The PPP application calculates the potential loan amount to two-and-a-half times a business’s average monthly payroll over a 12-month period. With over 200 employees working between the two upscale establishments before the closures in mid-March, Eyvazoff hired most of them back, and estimates the loan will allow him to to pay them approximately 90 percent of their wages over the next few months (after accounting for employer-paid state taxes).
Eyvazoff thinks the emergency federal loan will help stave off permanent closure for his restaurants, 71Above and Takami Sushi in Downtown LA, though it depends on the length of mandated dining room restrictions. If the closures last for more than two months, he thinks restaurants like his will have to lay off employees again, but the plan for now is for him to hire 100 percent of his full-time employees for the next eight weeks and qualify for loan forgiveness.
In order to receive loan forgiveness, businesses who receive PPP must use 75 percent of the funds for payroll, with the remaining 25 percent percent for paying rent, utilities, healthcare costs for employees, and any interest on mortgage or debt tied to the property. Since restaurants tend to have a heavy percentage of payroll costs, PPP works especially in their favor versus other business types such as retail sales, which have higher overhead and inventory costs.
But the rate of loan forgiveness depends on the number of full-time employees paid during the eight-week period after the funding date. Loan forgiveness will be decreased if businesses reduce salary, reduce the number of employees rehired, or don’t rehire before June 30, 2020 (at least based on the original $350 billion aid bill). For example, a restaurant that only hires back 90 percent of its full-time staff will only get 90 percent loan forgiveness, which means the operator will have to pay back 10 percent of the original loan amount within 24 months. Payments for any unforgiven loans will commence on month seven after the original funding date with a 1 percent interest rate.
Restaurants that secure a loan should get accustomed to a bit more paperwork. Eight weeks after the PPP loan is funded, businesses have to hand over bank statements to prove they used the money for their intended purposes. Though it wasn’t a specific requirement of the loan, Eyvazoff created a separate bank account to track payroll and other expenses specifically for the next two months, and to prevent co-mingling with other company transactions. He estimates nearly all of the loan funds will be spent by mid-June.
Even with the PPP, Eyvazoff knows it won’t matter unless customers show up once the stay-at-home orders and social distancing mandates ease. The next steps will be for restaurants to prove they are safe to enter, meaning not only lower capacity dining rooms, temperature checks, and masked servers, but potentially air-filtered dining rooms to reduce the spread of any contagions. “I’m concerned about our industry,” he says. “Places will close after this because the expenses outweigh potential business. Restaurants have to give customers and employees confidence that they can operate safely.”
Other than Eyvazoff’s two restaurants, the only a handful of local restaurants have been known to secure PPP. One is a small bakery in South LA that declined to be named, which received about $40,000. Macleod Ale Brewing Company in Van Nuys, which brews craft beer and bakes takeout pizza in a small kitchen, also received $153,000 in PPP from Kabbage, an SBA-focused institution based in Atlanta. Eater has reached out to multiple restaurant operators to ask who else had received PPP and retained the funds. Irvine-based Kura Revolving Sushi Bar initially received a $6 million federal PPP loan but announced it would be returning funds. Culver City-based Sweetgreen also returned $10 million in an effort to redistribute the money to smaller restaurant businesses.