Independent restaurant owners across the United States are caught in a financial crisis as economic injury disaster loans they took during the Covid-19 pandemic come due. The Guardian reported that since Congress passed the Coronavirus Aid, Relief, and Economic Security Act in March 2020, the federal government issued 3.9 million Covid-related EIDLs totalling $378.4bn to struggling businesses. However, according to a congressional report released earlier this year, defaults on these loans have steadily risen to over 30%, with $75.2bn in charged-off loans as of last June.
Many restaurant owners took the loans believing their businesses would recover after the pandemic. Jai Mazumdar, owner of Spice N Curry near Florida International University in Miami, borrowed $370,000 in early 2021 at a 3.75% interest rate, then took out an additional $87,000 the following year. But his lunch business never recovered as students and faculty continued working and studying remotely. Today, his monthly EIDL payment of $1,900 exceeds his home mortgage, forcing him to rent out a room in his own home to cover costs. He has lost money every year since Covid despite working seven days a week.
Erika Polmar, executive director of the Independent Restaurant Coalition, said Covid was an extinction event for tens of thousands of restaurants. Those that survived but did not receive restaurant revitalization fund grants were forced to repay substantial debts from small business loans or EIDLs, while promised rent relief and eviction moratoriums often failed to materialise. Owners also faced rising food, labour and energy costs that prevented them from reinvesting in their businesses.
When borrowers fall 120 days past due, loans transfer to the US Treasury Department for collection, adding fees and penalties amounting to roughly 30% of the principal. For personally guaranteed loans, the IRS can garnish wages, tax refunds or social security benefits. The Small Business Administration introduced a hardship accommodation plan in November 2022 allowing reduced monthly payments, but the programme expired last March, leaving struggling owners without relief options.