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29 Nov 23

Business Debt Relief Options for Restaurants Struggling Due to COVID-19

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Last Updated on: 15th December 2023, 10:35 am

Business Debt Relief Options for Restaurants Struggling Due to COVID-19

The restaurant industry has been one of the hardest hit by the COVID-19 pandemic. With lockdowns, capacity restrictions, staff shortages, and now inflation, many restaurants are struggling with overwhelming debt. However, there are options for relief that restaurant owners should explore before deciding to close up shop. This article provides an overview of debt relief programs, loan modifications, bankruptcy protection, and negotiating tactics restaurants can use to ease their financial burdens.

Federal and State COVID-19 Business Relief Programs

The first place for struggling restaurants to look is COVID-19 business relief programs offered by federal, state, and even local governments. The most well-known federal program is the Restaurant Revitalization Fund (RRF), which offered restaurants grants equal to their pandemic-related revenue loss, up to $10 million per business. Unfortunately, the RRF’s $28.6 billion in funds has already been exhausted
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. However, it doesn’t hurt to search for COVID-19 business relief programs in your state or city to uncover any grants or low-interest loans that your restaurant may still qualify for
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. The terms and availability of these programs vary widely, so restaurant owners need to conduct their own research.

Loan Modifications from Lenders

If your restaurant took out any business loans before or during the pandemic, the next strategy is to contact those lenders and negotiate loan modifications. This could include reducing the interest rate, extending the repayment timeline, lowering monthly payments, or even partial debt forgiveness. Lenders want to get repaid, so if they see COVID-19 has severely impacted your revenue, they may be willing to modify the loan terms rather than see your restaurant go bankrupt.
When negotiating, be prepared with financial records that demonstrate COVID-19’s impact on your restaurant’s revenue
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. Help lenders understand why you need relief and how it will allow you to eventually repay the debt. Approach negotiations in a spirit of finding a “win-win.” Offer to provide regular financial updates or commit to renegotiating the terms again in 6-12 months. Bring your accountant or financial advisor to help make the business case for a loan modification.
If your existing lenders refuse to budge, look into refinancing your business debt through state small business aid programs
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or alternative lenders like online loan brokers and merchant cash advance companies. While the interest rates may be higher, it could help ease your short-term cash flow issues.

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Chapter 11 Bankruptcy Protection

If loan modifications or refinancing won’t be enough relief, Chapter 11 bankruptcy may be an option worth exploring. Under Chapter 11, struggling businesses can reorganize their debts under court supervision versus completely liquidating assets. The automatic stay immediately halts collections, foreclosures, repossessions, and lawsuits so you can focus on restructuring the business.
The goal of Chapter 11 is to negotiate a confirmable repayment plan with creditors that allows the business to get back on steadier financial ground. These negotiations take place under close court oversight to ensure fairness. Sometimes creditors will agree to reduced debt balances, lower interest rates, delayed repayment, etc. to avoid the legal fees and uncertainty of forcing liquidation.
However, Chapter 11 bankruptcy also comes with significant legal fees in attorneys and court costs. And not all businesses successfully emerge from the process. An experienced bankruptcy attorney can analyze your situation and advise if Chapter 11 is a viable path forward.

Negotiating with Creditors

Before taking the dramatic step of bankruptcy, restaurants struggling with debt should also reach out directly to their creditors like vendors, suppliers, contractors, and tax agencies. Explain how COVID-19 has impacted your business finances and see if any temporary relief or alternative payment arrangements can be negotiated.
The key is transparency about your situation and showing how their flexibility now allows you to repay the full amounts later when business rebounds. Offer payment plans, postdated checks, or partial payments as good faith gestures. Enlist your accountant to help prepare financial statements proving COVID’s impact and your future repayment ability.
If polite requests and good faith offers don’t produce results, don’t hesitate to elevate matters to supervisors and management at the creditor firms or agencies. Go up the chain of command to find someone willing to work with you. While frustrating, remember that staying calm and constructive in these negotiations serves your interests best.

Explore Rent Relief with Landlords

Rent is typically one of the largest fixed costs for restaurants, so getting some temporary relief from landlords could make a big difference. Review your lease agreement to understand if there are any provisions allowing for delayed or reduced rent in extenuating circumstances like pandemics.
If your lease doesn’t address this, appeal directly to your landlord explaining how COVID-19 has affected your business. Provide documentation to quantify the financial impact. Offer to repay a portion of deferred rents or extend the lease term once business recovers. Suggest tying reduced rent to percentage revenue milestones as you rebuild.
Landlords obviously rely on rent to meet their own financial obligations. So the key is helping them understand it’s in their best interests to grant some temporary flexibility rather than lose a tenant. Keep negotiating politely and creatively until you reach a reasonable compromise.

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Help from Community Supporters

Don’t forget to tap into your local community for support during these difficult times. Loyal customers may agree to purchase gift certificates or merchandize to provide much-needed cash flow boosts. Set up online fundraising campaigns explaining the restaurant’s situation to appeal to their emotions. Consider offering naming rights or special recognition for significant supporter donations.
If your restaurant has been an active supporter of community groups pre-pandemic, now is the time to call in some goodwill. Reach out to organizations you’ve donated meals, catered events, or provided meeting space for in the past. Explain the challenges you’re facing and ask if they can urge members to provide financial support. Even small community efforts can help at the margins.

Stay Resilient and Hopeful

The past two years have tested restaurants like never before. But the industry has shown incredible resilience and signs of recovering as the pandemic wanes. Owners should stay vigilant in monitoring business finances, adapting operations to offset inflation, and taking advantage of every debt relief option available. With patience and perseverance, restaurants can survive the storm. There continues to be reason for hope as we build towards a prosperous post-pandemic future.
Disclaimer: This article provides general information about legal options and negotiating strategies. It should not be construed as formal legal or financial advice. All struggling businesses should consult licensed professionals like attorneys, accountants, and financial advisors to understand options in their specific situation.

References

[1] Restaurant Revitalization Fund (RRF)
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Business Debt Relief Options for Restaurants


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SBA Debt Relief Options


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New York State COVID-19 Business Relief