During a press briefing at the White House on April 2, a journalist asked Treasury Secretary Steve Mnuchin what incentives restaurants had to keep paying workers — a key goal of the $350 billion Paycheck Protection Program — if no one is actually patronizing these businesses, which largely remain closed in New York. The secretary responded by explaining that program loans turn into grants, which is true if workers stay on staff. “You get money for their medical…you get money for your rent…it doesn’t cost the business owner anything.”

On the contrary, the paycheck program could cost restaurants untold sums, a fact that became all the more clear when the government released new stimulus details last Thursday, hours before the banks (frantically) began to receive applications. By New Small Business Administration guidelines, borrowers will face even tighter loan forgiveness restrictions. They will also be disqualified if owners are on parole or probation, and they risk thousands (or tens of thousands) in monthly payments thanks to higher interest rates and a shorter payback period.

US House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer both called for small business assistance in future stimulus bills, which could come as early as the end of April. In the meantime, however, the paycheck program is not just insufficient for restaurants; it could be financially devastating for them, while offering a boon to lenders. Here’s how:

Even low interest rates could add excessive charges to struggling restaurants

Restaurants that don’t fully rehire their employees by the end of June will see their loan forgiveness reduced – a serious problem in the event of a slow recovery. What is even more serious is the published interest rate for these loans: one percentthat Mnuchin raised last week over an earlier 0.5% proposal after community banks protested. The loan repayment period has also been reduced from a long period of 10 years to two years.

Translation: Restaurants will have to repay their obligations over a shorter period, a hell of a sacrifice to make when they are already suffering. Plus, the higher interest rate could add thousands of dollars in fees to these struggling institutions.

The crux of the matter, however, is the June 30 deadline for rehiring. Imagine that a mid-sized steakhouse takes out a hypothetical $400,000 payday loan, hoping for a full forgiveness, but then finds it can’t employ a full staff because there aren’t enough guests to support the business until then. So suppose the repayable portion of the loan is reduced to $200,000.

Suppose also that the restaurant defers payments on the remaining $200,000 for six months. Interest alone, depending on how it’s calculated, could add thousands to the balance, while monthly payments would exceed $11,000 for the remaining eighteen months – and that’s on top of existing rent and payroll. ‘a restaurant. For many restaurants operating on extremely thin margins and with few cash reserves, such payments would simply be unsustainable.

PPP excludes people on probation or parole

Any restaurant, bar, or small business will not be eligible for a paycheck protection loan if any of the owners (with more than 20% ownership) are on probation, parole, or have been convicted of a crime in the past five years. It means owners who have already paid their debt to society – in a system of mass incarceration that disproportionately targets minorities – will be left out of the government’s main small business stimulus effort.

Loan forgiveness is now more restrictive and confusing

Restaurants hoping to determine their precise loan forgiveness rate are currently out of luck. The Small Business Administration said it still has “further guidance” to issue on the matter, which means culinary establishments borrowing hundreds of thousands of dollars are left in the dark. Additionally, the SBA has decided to prevent businesses from spending more than 25% of the repayable portion of the loan on anything other than payroll.

Payrolls, alas, mean little to restaurants that remain closed, with few staffing needs, while other fixed obligations pile up. A restaurant that takes out a $200,000 loan, half of which is forgiven, could only use $25,000 of the repayable portion on a combination of rent, utilities and interest payments. This number would be barely cover a month’s rent in a trendy area of ​​Flatiron or Chelsea.

Banks are the only ones who really guarantee free money

At last week’s press conference, another reporter seemed to wonder if the banks would be able to make enough money on this program. Here is how Mnuchin responded: “I told the bankers that they should take all their traders and put them in the branches. There will never again be an opportunity to earn five points on a fully government guaranteed loan.

Banks will collect a 5% processing fee from the government on loans of $350,000 or less. So, for a $340,000 loan, a bank would take $17,000 in fees before interest. This is not a bad deal considering that the loan is 100% guaranteed by the government. There is no risk.

And while each company has its own revenue models – the country needs functioning banks – there is something fishy about a program that secures large sums for a well-capitalized financial sector when little is guaranteed for restaurants spending hundreds of thousands of dollars — and the livelihoods of its owners — on the line.