The Hospitality Industry Borrows Largest Percentage of PPP Loan Funds

The hospitality industry has received more than $18 billion in loans from the latest round of the Paycheck Protection Program (PPP), according to data released by the U.S. Small Business Administration last week. The current round of the program began in January and has since distributed just under $101 billion in loans, with the largest percentage (18%) of those loans going towards restaurants and hotels.

How This Round is Different

During the first round of the program, which ran from April to August, only 8% of the entire hospitality segment received loans, according to August SBA data. 

For those who were approved, the first round of funding was often not enough to last the duration of the pandemic. Restaurant Business notes that the number of second-draw loans — those received by small businesses that have previously borrowed money under the original program — is about three times the amount of first-time loans. 

The SBA data also shows that about 70% of these second-round PPP loans amount to less than $50,000, with the average loan across all industries coming in at $78,000. 

The $25 Billion Restaurant Grant Program 

Both the National Restaurant Association and the Independent Restaurant Coalition have been vocal about their opinion that PPP loans can not save the struggling restaurant industry alone.

"The Paycheck Protection Program passed last year provided about $34 billion in support to the restaurant industry, but the pandemic has cost America's restaurants and bars over $240 billion in sales since March," the associations said in a joint letter to Congress on Feb. 10. “Congress must take actions to help this industry fully recover and employ out-of-work Americans.”

The main goal of this joint letter was to urge Congress to pass the House's proposed $25 billion restaurant grant program. The program is part of a $1.9 trillion budget resolution proposal which could distribute grants as high as $10 million per restaurant. The program would also allocate $5 billion in grants for restaurants that earned less than $500,000 in revenue in 2019.

In addition to maintaining payroll, the NRA and IRC point out that the proposed program could help restaurants pay down debts, which isn’t viable through PPP loans as borrowers must spend at least 60% of the loans on maintaining staff. 

“The proposal recognizes the unique business models of restaurants and bars, which operate on very low profit margins,” they said in the letter. “For instance, the proposal allows businesses to use grants on expenses incurred between February 2020, and the end of 2021, giving restaurants and bars the flexibility they need to manage changing demand or new regulations that may come from a surging virus.”

Restaurant Recovery

With a larger percentage of the PPP loans now allocated to the hospitality industry, the House's proposed grant fund could help restaurants make significant progress toward pandemic recovery. 

The $25 billion package currently remains in draft and President Joe Biden has indicated that he supports grants specifically for the restaurant industry.