For restaurants Covid-19 was a crisis – pandemic loans are proving a disaster

Restaurant owners struggle to repay pandemic loans as defaults rise

The full report

The Covid-19 pandemic had a devastating impact on the restaurant industry, with many businesses forced to take out low-interest loans to stay afloat. According to a congressional report, the Small Business Administration (SBA) issued 3.9m Covid-related economic injury disaster loans (EIDLs) totaling $378.4bn to businesses that faced hardship as a result of the pandemic.

Despite the attractive rates and flexible terms, EIDL defaults have steadily risen to over 30%, resulting in $75.2bn in charged-off loans as of last June. The Independent Restaurant Coalition, a non-profit advocacy group, estimates that Covid was an extinction event for tens of thousands of restaurants.

Restaurant owners who took out EIDLs are now struggling to repay the loans, with many facing financial difficulties. Jai Mazumdar, owner of Spice N Curry, a cafe and grocery in Miami, took out a $370,000 EIDL in early 2021 and was required to personally guarantee the loan. Five years later, he is struggling to make his monthly payments and is losing faith that he'll ever be able to fully repay the loans.

Mazumdar's business has lost money every year since Covid, yet he's managed to stay current with his loan payments. He's been working seven days a week, 12 hours a day for the last three years, and has had to rent out a room in his own home to cover part of the payment. His monthly EIDL payment is $1,900, and his home mortgage is $1,600.

The situation is not unique to Mazumdar's business. Many restaurant owners are facing similar challenges, with rising food, labor, and energy costs making it difficult to recover from the pandemic. The Independent Restaurant Coalition estimates that local initiatives that promised rent relief or eviction moratoriums often fell through, leaving businesses to struggle with debt and declining sales.