Silicon Valley Bank’s Failure Brings Payroll Turmoil for Chicago Restaurant Chain

The Silicon Valley Bank failure is impacting a Chicago restaurant chain. Fry the Coop, a fried chicken sandwich shop with seven locations, could not pay its 227 workers as scheduled on Friday, March 10, according to the chain’s owner. While the restaurant does not bank with Santa Clara, California-based Silicon Valley, its payroll company — Ohio-based Patriot Software — does.

“We’re in Chicago,” says Fry the Coop founder Joe Fontana. “How does a payroll company from Ohio bank with a company in San Francisco? It’s crazy.”

Fry the Coop’s workers — cooks, managers, and cashiers — are paid every two weeks under normal circumstances. Fry the Coop transmits its payroll to the Patriot to distribute. But, according to Patriot, it did not distribute money to 8,100 of its clients — like Fry the Coop — as of Sunday, March 12. For Fry the Coop, that means the $125,000 it sent Patriot has been frozen without a way to reverse the transaction. For restaurants, an industry without a large amount of available cash flow and with workers sometimes earning close to minimum wage and relying on tips, the situation is concerning. Fry the Coop opened in its first location in 2017 in suburban Elmhurst as a counter-service spot. It debuted in Chicago in 2019 in West Town.

Earlier today, President Joe Biden tried to reassure the American people and said customers with money deposited at Silicon Valley Bank will have access to their funds on Monday, March 13. But in Fry the Coop’s case, they have to wait for Patriot Software to have its funds released before restaurant workers get paid. Silicon Valley Bank represents the second-largest banking failure in American history; last week the government shut the bank down. Over the weekend, the feds said they would intervene to make sure all depositors would have access to their funds. That money would come from contributions banks pay into the FDIC Insurance Fund, which covers deposits up to $250,000. On Sunday, Biden promised that all deposits would now be covered.

Patriot uses SVB for all its banking needs, according to a statement put out over the weekend by the payroll company. Fontana says his company didn’t realize the severity of the situation until midday Friday. Sometimes glitches happen and pay is delayed a few hours. But the calls and emails started rolling in, and Fontana began to investigate more. Another heartbreaking aspect was talking to customer service agents at Patriot and discovering the payroll company’s workers also missed their paychecks this week, Fontana says.

Beyond paying for a few ride shares for workers who can't drive to work and don’t have money to pay for gas, Fontana says the company hasn’t had to cover any worker expenses. They were optimistic that Patriot could resolve the problem on Monday, March 13, but that hasn’t happened. That has him considering asking his bank for a bridge loan to cover payroll costs. Normally, this is a last resort — interest rates on such loans can be costly, Fontana guessed the bank would charge an 8-percent interest. They would reserve this tactic before opening a new restaurant, Fontana says, ensuring they met payroll while building a customer base.

But Patriot hasn’t committed to when they will be able to pay Fry the Coop’s workers, and that has Fontana and his employees waiting in limbo. Fontana notes that many in the service industry work paycheck-to-paycheck and Silicon Valley’s failure prevents them from paying critical bills: “It’s gut-wrenching,” says Fontana, whose anger grew when layering what his workers are facing to the news Silicon Valley Bank CEO sold $3.6 million of company stock in late February before the bank failed.

Fontana is hopeful his workers get paid soon. For the most part, they’ve been understanding.

The book Restaurant Man by Joe Bastianich stressed that the No. 1 rule to running a restaurant is to never miss payroll, and that’s been a principle that’s guided Fontana since he opened his first location: “I know it wasn’t our fault, but we still missed it,” he says.

Disclosure: Vox Media, which owns Eater, banked with SVB before its closure.