This week, a $28.6 billion federal relief fund for restaurants and other food businesses was forced to close due to a lack of funds. The fund had only been able to fund slightly more than a third of the grant requests it had received.
Successful applicants received an email from the Small Business Administration, which administers the Restaurant Revitalization Fund, explaining that the fund was unable to fund all qualified applications due to “overwhelming demand.”
More than 370,000 business owners submitted applications for more than $75 billion in funding, nearly three times the amount of money that was available through the programme. A total of approximately 105,000 businesses were approved for grants, with an average award of slightly more than $272,000.
A spokesperson for the National Restaurant Association said, “For a hundred thousand restaurants, the R.R.F. has made their future clear and stable, but for the more than 200,000 operators who have been denied funding, receiving this letter today only serves to increase their fear and anger.” “We require action from Congress.”
Industry groups have called on lawmakers to increase the amount of money allocated to the fund. Bills to increase the federal deficit by $60 billion have been introduced in both the House and the Senate, with bipartisan support, but their fate on a crowded legislative calendar is unclear.
In the aftermath of the pandemic, restaurants and bars were among the hardest hit businesses, with many being forced to close for months at a time. In addition to live-event businesses such as music clubs and movie theatres, they were one of two industries for which Congress set aside special relief funds, the other being the construction industry. Owners may be eligible to apply for grants designed to help them recover from the significant losses they have suffered over the past year.
The restaurant fund, which began operations in May and was initially successful, became embroiled in controversy in its final weeks, with thousands of grants rescinded due to policy changes and thousands more stalled due to delays and technical glitches. The number of applicants awaiting decisions grew increasingly desperate as the amount of available funding decreased.
It was mandated by Congress that the Small Business Administration give priority to funding for businesses owned by women, people of colour, and military veterans when the restaurant fund was established in March as part of the Biden administration’s $1.9 trillion American Rescue Plan.
However, with demand far outstripping the amount of money available, this approach ran the risk of leaving all applicants outside of the priority groups without assistance. Several white business owners filed a lawsuit, and federal judges ruled that they had a good chance of proving their claims that the program’s policy violated the Constitution’s equal protection clause under the Fifth Amendment. Because of this, the Small Business Administration ended the policy and revoked the grants awarded to nearly 3,000 priority applicants who had been told they would receive grants.
However, this was not the only problem with the programme. Grants for an unknown number of applicants have been revoked in the recent past due to administrative errors.
Daily Business Briefing
July 1, 2021, 5:00 p.m. ET
Linda Novak, the owner of the Starlight, a cocktail and jazz bar in New Orleans, applied just hours after the program’s doors opened and received an approval notice for a grant of approximately $300,000 on May 21, just days after the program’s doors opened. Within a week, she was informed that the funds would be transferred into her bank account.
However, it never arrived. She contacted customer service hotlines for her bank and the Small Business Administration in early June, but received no response. She eventually found out from her bank, Hancock Whitney, that the deposit had been rejected because it had been incorrectly coded as being for a savings account, which she found out later. Ms. Novak — who runs her business solely out of a checking account and was confident that she had completed the grant paperwork correctly — immediately filed a correction request with the Small Business Administration, but it remained unanswered for several weeks.
Ms. Novak received an email from the Small Business Administration (S.B.A.) last week informing her that the money she was relying on would not be paid due to the lawsuits challenging the program’s prioritisation rules. In a statement, the agency acknowledged that her bank had rejected its deposit and stated that it “will not be able to attempt redistribution at this time due to the legal conclusions in these court rulings preclude such action.”
Ms. Novak was taken aback. “I made the assumption that a guarantee from the United States government was valid, and that I could proceed as if this money would be forthcoming,” she explained. “The very first thing I did was rehire existing employees.” For the past month, I’ve been paying all of these salaries that I could only afford because of the grant that was about to arrive.”
Kylie Sachs, the owner of Milk Bar, a chain of two cafes in Brooklyn, has also been left stranded by technical difficulties she does not understand. For each of her locations, she applied for a loan, and she received approval notices for both of them in mid-May. For the first, the money arrived quickly; however, the deposit for the second never arrived at all. After a few days, she began calling the S.B.A.’s hotline, where she was told each time by agency representatives that there had been some payment delays, but that the money would be delivered eventually.
She, too, received an email last week informing her that her grant had been revoked. The letter informed her that her application had been rejected because of a “invalid industry flag,” and that it would be withdrawn as a result of the lawsuits.
A spokesman for the Small Business Administration declined to comment on the specific cases of individual borrowers.
Ms. Sachs stated that she had used the same industry code for both of her applications and that she had no idea why one had been successful and the other had been unsuccessful. “It’s impossible to get straight answers,” she lamented.
She has been left in a bind as a result of losing the grant, which she estimated to be in the low six figures. “I’m not in a position to hire people. I’m unable to make repairs or make capital investments because of my financial situation. According to her, “none of that money is being reinvested back into the economy.”
Ms. Novak is concerned that she will be forced to close the Starlight if she does not receive the grant she has been promised. Customers are beginning to return, but she has accumulated a backlog of deferred maintenance and debts as a result of the previous year. Without the money, she admitted, she was unsure of her ability to carry on.
The money provided by grants was often a lifeline for those who received them. May saw the receipt of funding for Tamra Patterson, the proprietor of Chef Tam’s Underground Cafe in Memphis. She immediately hired more employees and increased the wages of her existing employees to $16 an hour.
“It literally brought my company back to life,” she explained. Trying to breathe through a straw in the middle of the ocean has felt like sucking air from a straw this year. This allowed us to finally take a deep breath.”