Cameron Mitchell’s Solutions to the Paycheck Protection Problem

In March, restaurateur Cameron Mitchell made the difficult decision to close all 36 of his restaurants and lay off 4,500 employees amid the COVID-19 pandemic.

His company went from $325 million in revenue and a record start to the year to zero in an amount of days. Cameron Mitchell Restaurants essentially went into sleep mode. 

Like many other operators, Mitchell sought the stimulus package’s $349 billion Paycheck Protection Program for financial relief. His company qualified for $25 million, but maxed out at $10 million, per the rules of the program. 

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But now there are questions surrounding the program’s effectiveness due to restrictions. In response, Mitchell devised a multi-pronged plan on how to tweak the program and put more cash in the hands of operators. 

For Mitchell, the first issue is the timing of the loan. The forgiveness window is eight weeks, and that begins as soon as businesses receive the funds. 

The problem is he doesn’t think his restaurants will be open until at least June 1, so there’ll be little opportunity to qualify for forgiveness. To remedy the issue, Mitchell suggests extending the forgiveness phase to 16 to 20 weeks after restaurants can reopen. 

“It’s designed to get people back to work and get them off unemployment and so forth, but the thing about that is, people really don’t want to come back to work right just yet because they’re making a lot of money on unemployment,” Mitchell says. 

The next problem is the amortization period. The CARES Act passed with the loans to be paid off in 10 years with 4 percent interest. It was soon rewritten to two years, with payments beginning in six months. 

Mitchell laid out a scenario where only $1 million of his loan is forgiven if he only opens a portion of restaurants. He’d have to start paying off the rest of the $9 million in October, which would be around $500,000 per month plus interest. 

The industry veteran’s solution is to extend the terms to at least four years or back to the original 10. 

“There’s no way in October we’re going to be even near full operating capacity. We have all our other debt payments,” Mitchell says. “The company is not going to be able to withstand those payments going forward with that early of an amortization. A lot of the restaurateurs will be in the same boat. There is no doubt about that.”  

“I think when the Treasury wrote that, they imagined a majority of the loans would be forgiven and then they could clean up the program in two years and be done with it,” he adds. “But it’s just not practical.”

The third part of Mitchell’s plan is to change how the loan is spent. The program mandates that small businesses spend 75 percent on payroll and 25 percent on rent and utilities. But Mitchell explains that restaurants have significant expenses they can’t pay right now because they’re shut down, which will increase with the addition of reopening costs. 

His suggestion is to change the allocation to 50 percent payroll and 50 percent rent and utilities. 

“Even if restaurants can reopen, maybe they’re going to reopen to 50 percent occupancy,” Mitchell says. “Well, rent where it was 7 percent of full sales is now 14 percent. Restaurants can’t cut their management labor by 50 percent, their associate labor by 50 percent, their utilities by 50 percent, rent by 50 percent. I’m fearful these restaurants in America are going to open up to a lot of red ink and we’ll see rolling closures going on after we get reopened.”

The operator says the process for his company obtaining an SBA loan was relatively easy because his company has a longstanding relationship with Huntington Bank. The $349 billion in funds have since run out, but the federal government is considering adding $250 billion to the program. 

He acknowledges that there are countless businesses who aren’t as lucky because they don’t have the same relationships. 

“I think the government should be able to somehow correct that so at least they can go through any credit union or any type of bank or just have better access to those funds,” Mitchell says. “I hope the $250 billion will take care of all the remaining requests. … I’d hate to see anybody left out in the cold.”

Mitchell, who has spoken to multiple lawmakers, says he believes the federal government is taking the interests of restaurants seriously. 

“I’m not upset about it at all,” Mitchell says. “It was made in a vacuum and done quickly without all the real information. I’m sure some of these government programs are going to need to be tweaked and reworked. It doesn’t have to be any part of the fourth stimulus package, it could just be administratively done and rewritten.”

The final bullet of Mitchell’s plan doesn’t deal with the Paycheck Protection Program, but it does seek more capital for restaurants. 

Many in the industry, such as Thomas Keller, have garnered national attention for their ongoing court battles with insurance companies over business interruption policies. Mitchell says 80 percent of restaurant policies have virus exclusions, giving insurers the ability to opt out of payments. 

Mitchell believes the federal government should mandate that insurance companies waive the exclusions, and then backstop the policies so insurers can process the virus-related claims. 

“It treats all companies the same, regardless of whether they’re a $1 million restaurant, a $10 million restaurant or a $100 million company or whether they have 5 percent profit or 10 percent profit,” Mitchell says. “All those are taken into account in terms of the business interruption insurance and damages that are paid out. So it’s really the great equalizer of businesses out there to treat them appropriately to whatever size they are and whatever their profitability was. 

“ … Even if they pay restaurants out 50 cents on the dollar or 75 cents on the dollar for their claims. Insurance companies, they’re in the business of processing claims, that’s what they do and they have a full staff to do that.”

The nine to 12 months after restaurants reopen will be the most treacherous, Mitchell predicts. 

His company has discussed scenarios like operating at half capacity, bringing back salaried employees on a reduced salary and four-day work weeks, and limiting the shifts of hourly employees. 

If changes aren’t made to the Paycheck Protection Program and restaurants can’t access insurance policies, Mitchell says the industry’s future becomes a lot more bleak. 

“That’s almost the death knell for restaurants at that point,” Mitchell says. “… It’s going to be a difficult ride, there’s no doubt about it. I’m afraid we’re going to lose 25 percent of the nation’s restaurants through this. We’re working diligently to do what we need to get to the other side.”