For restaurants, Covid was a crisis — pandemic loans have become a disaster

US restaurant owners who took federal Economic Injury Disaster Loans during the Covid-19 pandemic are increasingly struggling to keep up with repayments. Loans that initially supported businesses have become a long-term financial burden for many operators.

Since March 2020, the federal government has issued 3.9 million loans worth $378.4 billion. A congressional report said defaults had risen above 30%, with $75.2 billion charged off as of last June.

Personal assets face collection

Borrowers with EIDL balances above $200,000 were required to provide personal guarantees. Once payments are more than 120 days overdue, loans are transferred to the US Treasury; fees and penalties typically add about 30% to the principal, while the IRS can garnish wages, tax refunds or part of Social Security benefits.

Jai Mazumdar, owner of Spice N Curry in Miami, borrowed $370,000 in 2021 and received another $87,000 the following year. The cafe depended heavily on traffic from Florida International University, but remote study and work reduced lunch business. After reopening in 2022, Mazumdar permanently closed the dining room after a year and a half.

His monthly EIDL payment is $1,900, compared with a $1,600 mortgage payment. He rents out a room in his home to help cover the debt and says the business has lost money every year since Covid began.

Delinquent loans grow more expensive

Randy Barnette of Virginia’s Ornery Beer Company has been nearly two years behind on a $500,000 EIDL taken out in February 2021. After several failed real-estate deals, he opened a second restaurant, but falling sales forced him to reduce the production brewery and close the original venue.

After the hardship payment program ended, his loan was sent to Treasury collections. Interest, penalties and fees increased the balance from $530,000 to more than $750,000. Virginia’s homestead exemption protects only $25,000 of home equity per individual.

Chef and co-owner Dan Jacobs said his Milwaukee restaurants, DanDan and EsterEv, pay nearly $5,000 a month on their 2021 loan. He estimates the payment cuts the profit margin by one-third, while business fell about 15% last year.

SBA lending standards questioned

Small-business attorney John Benson said his firm has seen a significant increase in restaurant owners seeking help with EIDL debt. In some cases, he said, loans have been reinstated from collections or debts settled for less than the full amount.

Restaurant representatives point to inflation, high rents, labor and energy costs, and declining tourism. Erika Polmar, executive director of the Independent Restaurant Coalition, said businesses that did not receive Restaurant Revitalization Fund grants were forced to use money to repay loans instead of reinvesting.