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Restaurant Grant Program Ends in a Cloud of Errors and Confusion

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A $28.6 billion federal relief fund for restaurants and other food businesses closed on Wednesday after running out of money, having fulfilled fewer than a third of the grant requests it received.

The Small Business Administration, which runs the Restaurant Revitalization Fund, told unsuccessful applicants in an email that it was unable to fund all qualified applications because of “overwhelming demand.”

More than 370,000 business owners applied for more than $75 billion in funding, nearly three times what the program had available. Around 105,000 businesses were approved for grants, which averaged just over $272,000.

“For a hundred thousand restaurants, the R.R.F. has made their future clear and stable, but for the more than 200,000 operators shut out of funding, receiving this letter today only heightens their fear and anger,” said Sean Kennedy, a spokesman for the National Restaurant Association. “We need Congress to act.”

Industry trade groups called for lawmakers to give the fund more money. Bills to add a further $60 billion have been introduced, with bipartisan backing, in both the House and the Senate, but their future in a crowded legislative calendar is unclear.

Restaurants and bars were among the hardest-hit businesses in the pandemic, with many forced to close their doors for months. They were one of two industries — along with live-event businesses like music clubs and movie theaters — for which Congress created special relief funds. Owners could apply for grants intended to offset their steep losses over the past year.

The restaurant fund, which opened in May, started off smoothly but was mired in turmoil in its final weeks, with thousands of grants rescinded because of policy changes and thousands more stalled by delays and glitches. Applicants awaiting decisions grew increasingly desperate as the remaining funding dwindled.

When Congress created the restaurant fund in March as part of the Biden administration’s $1.9 trillion American Rescue Plan, it ordered the Small Business Administration to prioritize funding for businesses owned by women, people of color and military veterans.

But with demand far outpacing the money available, that approach risked leaving all applicants outside the priority groups empty-handed. Several white business owners sued, and multiple federal judges ruled that they were likely to succeed in proving their claims that the program’s prioritization policy violated the Constitution’s equal protection clause. In response, the S.B.A. ended the policy and rescinded the awards of nearly 3,000 prioritized applicants who had been told they would receive grants.

That wasn’t the only issue with the program. More recently, an unknown number of applicants have had their grants revoked because of errors.

Linda Novak, the owner of the Starlight, a cocktail and jazz bar in New Orleans, applied just hours after the program opened and received an approval notice on May 21 for a grant of around $300,000. She was told the money would be in her bank account within a week.

But it never arrived. In early June, she called customer service hotlines for her bank and the Small Business Administration. She eventually learned from her bank, Hancock Whitney, that it had rejected the deposit because it was improperly coded as being for a savings account. Ms. Novak — who has only a checking account for her business and said she was certain she filled out the grant paperwork correctly — immediately filed a correction request with the S.B.A., but it languished for weeks.

Last week, Ms. Novak got an email from the S.B.A. that said the money she was counting on would not be paid because of the lawsuits challenging the program’s prioritization rules. The agency acknowledged that its deposit had been rejected by her bank and said it “will not be able to attempt redistribution at this time because the legal conclusions in these court rulings preclude such action.”

Ms. Novak was stunned. “I assumed a guarantee from the U.S. government was good, and I could proceed as if this money would be coming to me,” she said. “The first thing I did was rehire employees. For a month I’ve been paying all these salaries that I could only afford because this grant was coming.”

Kylie Sachs, an owner of two cafes in Brooklyn called Milk Bar, has also been left stranded by errors she doesn’t understand. She applied for loans for each of her locations and received approval notices for both in mid-May. The money arrived quickly for one, but the deposit for the second never came through. She began calling the S.B.A.’s hotline every few days, and was told each time by agency representatives that there were some payment delays but that the money would arrive.

Last week, she too got an email saying her grant had been revoked. Her application had an “invalid industry flag,” the letter said, and would be canceled because of the lawsuits.

A Small Business Administration spokesman declined to comment on individual borrowers’ cases.

Ms. Sachs said she used the same industry code for both of her applications; she has no idea why one succeeded and one failed. “You can’t get straight answers,” she said.

Losing the grant, which she said was in the low six figures, has left her in the lurch. “I’m not able to hire people. I’m not able to do repairs and make capital investments. None of that money is going back into the economy,” she said.

Ms. Novak fears she may have to close the Starlight if she doesn’t get the grant she was promised. Customers are starting to flock back in, but the past year left her with a backlog of deferred maintenance and debts. “I’m not sure I can continue without this money,” she said.

For those who got grants, the money was often a lifeline. Tamra Patterson, the owner of Chef Tam’s Underground Cafe in Memphis, received funding in May. She immediately hired more workers and gave her employees a raise to $16 an hour.

“This literally resuscitated my business,” she said. “This past year has been like sucking air through a straw in the middle of the ocean. This finally let us breathe.”


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