The Restaurant Revitalization Fund is long overdue, but it’s finally here. It was recently signed into law as part of the American Rescue Plan Act. The fund establishes a $28.6 billion fund that will provide grants to restaurants and similar establishments to replace the revenue they would have earned if COVID didn’t happen. Restaurants have been asking for specific aid for their industry, and they finally got it. Here’s how it works (based on the information we know as of today):
An eligible entity will receive a tax-free grant amount equal to their pandemic-related revenue loss, that must be spent on qualified expenses over a covered period.
Each of these terms is defined below:
Eligible Entity
An eligible entity is an entity that owns a place of business where the public or patrons assemble for the primary purpose of being served food or drinks. This includes:
- restaurants
- food stands/food trucks/food carts
- caterers
- tavern/bar/lounge/saloon
- inns with onsite sales of food and beverage to the public of at least 33% of gross receipts
- brewery/brewpub/microbrewery/taproom/tasting room with onsite sales to the public of at least 33% of gross receipts
- a bakery that has onsite sales to the public of at least 33% of gross receipts
- a winery that has onsite sales to the public of at least 33% of gross receipts
- a distillery that has onsite sales to the public of at least 33% of gross receipts.
- licensed facility or premises of a beverage alcohol producer where the public may taste, sample, or purchase products, or
- other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink.
The entity must submit a good faith certification that the uncertainty of current economic conditions makes necessary the grant request to support ongoing operations and that they will spend the grant money on qualified expenses.
Disqualified Entities
The entity will be ineligible for an RRF grant if:
- As of March 13, 2020, the entity owns or operates (together with any affiliated business) more than 20 locations, regardless of whether those locations do business under the same or multiple names
- The entity has received a Shuttered Venues Operations Grant (SVOG) or has a pending SVOG application
- The entity is a publicly-traded corporation or is majority-owned and controlled by a publicly traded corporation
- The entity does not have a place of business located in the U.S., does not operate primarily within the U.S., and does not make a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
- The entity is a state- or local government-owned or operated business.
- The entity is permanently closed.
- The entity filed for bankruptcy under Chapter 7 or is liquidating under Chapter 11.
- The entity has filed for bankruptcy under Chapter 11, 12, or 13 but does not have an approved plan for reorganization
Grant Amount
The grant amount is as follows:
Grant amount = 2019 Revenue – 2020 Revenue* – Total PPP funds received
For those not in operation for the entirety of 2019:
Grant amount = 2019 Annualized Revenue – 2020 Revenue* – Total PPP funds received
For those not in operation until 2020, or not open as of March 11, 2021:
Grant amount = Qualified Expenses incurred from 2/15/2020 through 3/11/2021 – Revenue* from 1/1/2020 through signature date – Total PPP funds received
Applicants not in operation for the entirety of 2019 can use the third calculation as well, but these applications will take longer to process. The max amount of the grant is $10 million including affiliates** and is limited to $5 million per eligible entity. The grant amount must be greater than $1000 to qualify.
*2020 revenue does not include proceeds from the PPP, EIDL, targeted EIDL advance, state and local small business grants, or any other grant funds received via the CARES Act. Also, do not include tips/gratuities in your gross receipts calculations.
**An Affiliated Business or affiliate is a business in which an eligible entity has an equity interest or right to profit distributions of not less than 50 percent, or in which an eligible entity has the contractual authority to control the direction of the business, provided that such affiliation shall be determined as of any arrangements or agreements in existence as of March 13, 2020.
Qualified Expenses
Funds are not for any other purposes other than expenses related to:
- Business payroll costs*, including sick leave and costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
- Payments on any business mortgage obligation (both principal and interest; note: this does not include any prepayment of principal on a mortgage obligation);
- Business rent payments, including rent under a lease agreement (note: this does not include any prepayment of rent);
- Business debt service (both principal and interest; note: this does not include any prepayment of principal or interest);
- Business utility payments for the distribution of electricity, gas, water, telephone, or internet access, or any other utility that is used in the ordinary course of business for which service began before March 11, 2021;
- Business maintenance expenses including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment;
- Construction of outdoor seating;
- Business supplies, including protective equipment and cleaning materials;
- Business food and beverage expenses, including raw materials for beer, wine, or spirits;
- Covered supplier costs, which is an expenditure made by the eligible entity to a supplier of goods for the supply of goods that:
- Are essential to the operations of the entity at the time at which the expenditure is made; and
- Is made pursuant to a contract, order, or purchase order in effect at any time before the receipt of Restaurant Revitalization funds; or
- With respect to perishable goods, a contract, order, or purchase order in effect before or at any time during the covered period;
- Business maintenance expenses including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment; and
- Business operating expenses, which is defined as business expenses incurred through normal business operations that are necessary and mandatory for the business (e.g. rent, equipment, supplies, inventory, accounting, training, legal, marketing, insurance, licenses, fees). Business operating expenses do not include expenses that occur outside of a company’s day-to-day activities.
*wages used to claim the employee retention credit (ERC) do not qualify
If an eligible entity that receives a grant fails to use all grant funds by March 11, 2023, or permanently closes before using all funds for authorized purposes, then they should return all unused funds to Treasury.
Covered Period
The covered period is February 15, 2020, through March 11, 2023, but could potentially be extended. If the business permanently closes, the covered period will end when the business permanently closes or on March 11, 2023, whichever occurs sooner.
Not later than December 31, 2021 all Applicants are required to report through the application portal how much of their award has been used against each eligible use category. If the Applicant fully expends their funds prior to December 31, 2021, they will be asked to certify in the application portal that proceeds have been used on eligible expenses. All Applicants that do not fully expend award funds prior to December 31, 2021 will be required to complete annual reporting submissions until they fully expend the award funding or the period of performance expires. SBA reserves the right to request supplemental documentation needed to validate the certification
Application Process
I’m sure most of you skipped all sections and came directly here. If so, I don’t blame you.
The RRF applications will be directly through the SBA, not through a bank like the PPP. However, you will be able to apply through the following POS systems as well: Clover, NCR, Square, and Toast.
Registration begins HERE on Friday, April 30, 2021, at 9 a.m. EDT (if not applying via POS system).
Application opens HERE on Monday, May 3, 2021, at noon EDT
When applying, the applicant must certify that:
- the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the eligible entity; and
- the entity has not applied for or received a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act aka the Shuttered Venue Grant.
Generally, grants will be awarded in the order in which applications are received with priority for the first tranche, but the applications will be available to everyone at the same time.
The first tranche period is 21 days and includes $60 million specially allocated to the following small businesses:
- woman-owned small business
- 51% + women-owned
- have the management and daily business operations controlled by one or more women
- veteran-owned small business
- 51% + veteran-owned
- have the management and daily business operations controlled by one or more veterans
- socially and economically disadvantaged owned small business
- 51% + owned by one or more socially and economically disadvantaged individuals
- have the management and daily business operations controlled by one or more socially and economically disadvantaged individuals
- Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities. This includes:
- Black Americans;
- Hispanic Americans;
- Native Americans
(including Alaska Natives and Native Hawaiians); - Asian Pacific Americans; or
- Subcontinent Asian Americans
- Economically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged. This includes:
- In assessing economic disadvantage, SBA will look at whether the net worth of the individual claiming disadvantage is less than $750,000, excluding his or her ownership interest in the Applicant, primary personal residence, contingent liabilities, funds invested in an official retirement account, or income received from an S-corporation, LLC, or partnership if the individual provides documentation that the income was reinvested in the firm. SBA will also look at whether the adjusted gross income of the individual averaged over the preceding three years exceeds $350,000. Income received from an S-corporation, LLC or partnership that is reinvested in the firm or used to pay taxes arising in the normal operations of the firm is excluded. Finally, SBA will look at whether the fair market value of all the individual’s assets (excluding his or her ownership interest in the Applicant, primary personal residence, or funds invested in an official retirement account) exceeds $6 million. An individual who exceeds any of these thresholds for net worth, personal income, or total assets will generally be deemed to not be economically disadvantaged.
If an individual meets the requirements of more than one priority group category, that individual is only counted once.
To reiterate, the grants will be issued in tranches, but applications will become available to everyone at the same time, so do not wait to apply! Once you start an application, you can save it and return to complete it later.
Also, $5 billion of the total $25 billion will be given to restaurants with <$500k in sales in 2019.
As of today (4/19/2021), the application for this grant has yet to be released, but there is a draft application here. The SBA is expected to release the application at the end of April. We will continue to update this post as more information is released. In the meantime, here is what you can gather to prepare in advance:
- IRS Form 4506-T, completed and signed by Applicant. Completion of this form digitally on the SBA Grant Platform will satisfy this requirement.
- Applicants that:
- were in operation prior to or on January 1, 2019, must supply documentation of gross receipts for 2019 and 2020;
- began operations partially through 2019, must supply documentation of gross receipts for 2019 and 2020;
- began operations on or between January 1, 2020 and ending on March 10, 2021 and Applicants that have not yet opened but as of March 11, 2021, but have incurred eligible expenses, must supply documentation of gross receipts and eligible expenses for the length of time in operations.
- Support for gross receipts including any of the following:
- Business tax returns (IRS Form 1120 or IRS 1120-S);
- IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F;
- For a partnership: partnership’s IRS Form 1065 (including K-1s);
- Bank statements;
- Externally or internally prepared financial statements such as Income Statements or Profit and
Loss Statements**; - Point of sale report(s), including IRS Form 1099-K*; If the 2020 tax return is not filed, then this is the best alternative.
- For Applicants that are a brewpub, tasting room, taproom, brewery, winery, distillery, or bakery:
- documents evidencing that onsite sales to the public comprise at least 33% of gross receipts for each of the years included in your funding calculation, which may include Tax and Trade Bureau reports filed or to be filed that cover the period for which you are reporting gross receipts, or if applicable, eligible expenses.
- For Applicants that are an Inn:
- In addition to the documents in (1) above, documents evidencing that onsite sales of food and beverage to the public comprise at least 33% of gross receipts for each of the years included in your funding calculation.
RRF applicants are advised to complete their PPP application in advance of the RRF application, it might move things along faster.
*The 1099-K generally includes credit card tips as well, so make sure these aren’t being counted towards your gross receipts calculation.
**The SBA wants a Comfort Letter from the CPA if the 2020 return hasn’t been filed for the P&L submitted, otherwise, it could delay review past 14 days.
Taxability
Similar to the PPP, the RRF grants will not be included as federal taxable gross income by the IRS, and deductions for expenses using RRF funds will be allowed. However, the state tax treatment will vary by state.
Please feel free to contact us if you have questions or need help with the application!
By Raffi Yousefian | Published 02/27/2021; Updated 06/24/2021 9:45:48 AM
