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Debt Relief Options for a Restaurant Hit Hard by COVID-19 Shutdowns


Debt Relief Options for Restaurants Struggling Due to COVID-19

The COVID-19 pandemic has hit the restaurant industry especially hard. With shutdowns, capacity limits, staff shortages and now inflation, many restaurants are struggling with overwhelming debt. Fortunately, there are options for debt relief that can help ease the burden. This article will discuss strategies like loan modifications, government programs, bankruptcy and debt settlement that may provide a lifeline.

Loan Modifications

For restaurants with debt owed to banks and other lenders, loan modifications can provide temporary payment relief. This involves working with the lender to change the terms of the loan. Options may include:

  • Lower interest rates
  • Extended repayment timeline
  • Temporary reduction in monthly payments
  • Adding missed payments to the end of the loan

When negotiating, be prepared with financial records that demonstrate COVID-19’s impact on your restaurant’s revenue. 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.” Lenders want to get repaid, and loan modifications can help you achieve that. Bankruptcy as a Last Resort

Government Programs

The federal government has implemented several programs to help businesses, including restaurants, manage debt accrued due to COVID-19.

Paycheck Protection Program

The Paycheck Protection Program (PPP) offered small businesses low-interest, forgivable loans to cover payroll and other expenses during the pandemic. For restaurants that received PPP loans, some or all of the amount may be forgiven if used according to program rules.

Restaurants should submit a loan forgiveness application to their lender once eligible expenses are verified. The Small Business Administration can provide guidance on qualifying for forgiveness.

Restaurant Revitalization Fund

The Restaurant Revitalization Fund (RRF) provided restaurants with funding equal to their pandemic-related revenue loss up to $10 million per business. The RRF application period closed in 2021, but additional funding may be approved in the future.

Restaurants can register to receive email updates on any new RRF opportunities. Being prepared with financial records will make it easier to complete an application quickly next time.

State and Local Programs

Many states, cities and counties offered grants, tax credits and other relief for restaurants during COVID-19. For example, California allowed restaurants to defer sales tax payments.

Search for “COVID-19 restaurant relief” plus your location to find programs. Continue monitoring for new initiatives as governments allocate pandemic funds.


Filing for bankruptcy allows businesses to eliminate or repay only a portion of debts under court supervision. Options like Chapter 11 and Chapter 7 may provide a fresh start.

Chapter 11 involves creating a reorganization plan to keep operating and pay creditors over time. Chapter 7 liquidates assets to pay creditors, so the business closes. Consult with legal and financial experts to determine if bankruptcy is the right solution.

Debt Settlement

Debt settlement companies negotiate with creditors to reduce balances owed. They require monthly payments into an account until enough is saved to make settlement offers.

This can resolve debt for 30-50% of the amount owed. However, settlements may have tax consequences, and creditors may sue if negotiations fail. Thoroughly research any settlement company before signing up.

Maintaining Customer Loyalty

As restaurants pursue debt relief strategies, it’s also vital to focus on retaining loyal customers. Survival may depend on neighborhood regulars who want to support the business.

  • Use social media and email lists to update customers on re-openings, new offerings and safety precautions. Seek feedback on how to best meet their needs.
  • Offer special discounts or free items as a gesture of appreciation for their patience and commitment.
  • Be flexible and responsive to customer concerns during this difficult time for everyone.

Long-Term Financial Planning

While debt relief can provide temporary aid, restaurants should also re-evaluate their financial plans for the long haul. Steps like analyzing profit margins, reducing overhead and renegotiating leases can help stabilize finances.

Many restaurants are also diversifying revenue streams, such as selling meal kits, opening ghost kitchens and expanding outdoor seating. A mix of dine-in, takeout and delivery options allows adapting to limits and customer preferences.

Careful budgeting, marketing and community engagement will help restaurants reconnect with patrons. With time, persistence and creativity, restaurants can recover from pandemic losses. Supporting local favorites now plants seeds for these businesses to thrive again in the future.

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