Written by Anna Nagornaia – Associate, Wendel Rosen’s Business Practice Group
Help is on the way for restaurant owners who were hit hard by the COVID-19 pandemic. On March 11, 2021, President Joe Biden signed the American Rescue Plan Act of 2021 (the “Act’), a $1.9 trillion bill aimed at boosting the American economy during the COVID-19 pandemic. The Act created a $28.6 billion Restaurant Revitalization Fund (RRF). Unlike the Paycheck Protection Program (PPP) loans, the RRF will be administer directly by the Small Business Administration (SBA).
What is the RRF grant?
An eligible restaurant business may receive a tax-free federal grant equal to the amount of its COVID 19 pandemic-related revenue loss. Unlike the PPP, the RRF is a grant, which means you do not need to pay it back.
Who is Eligible for the RRF?
Eligible entities include: restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed facilities or premises of beverage alcohol producers where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drinks.
If you own more than twenty restaurants, your business is not eligible for the RRF. Publicly traded companies are also not eligible for the RRF. However, if you own a franchise of a publicly traded company, your business is eligible.
For an initial period (one to two weeks), the SBA will prioritize awarding grants for small businesses owned and controlled by women, veterans, or socially and economically disadvantaged small business concerns.
How much money is available?
In total, $23.6 billion will be available for restaurant businesses of different sizes based on annual gross receipts. Specifically, $5 billion will be available to businesses with gross receipts of $500,000 or less during 2019.
How much can you get?
Generally, the total RRF grant amount for an eligible business and any affiliated businesses is capped at $10 million and is limited to $5 million per physical location of the business. Specifically, the RRF grant is based on your pandemic-related revenue loss.
To calculate your revenue loss, subtract your 2020 gross receipts from the 2019 gross receipts. If your business was not in operation for the entirety of 2019, the total revenue loss is the difference between 12 times the average monthly gross receipts for 2019 and the average monthly gross receipts in 2020 (or a formula from SBA). If your business was not in operation until 2020, you can still receive a grant equal to the amount of “eligible expenses” subtracted by your gross receipts received (or a formula from SBA). If your business was not yet in operation as of the application date, but it has made “eligible expenses,” the grant would be made equal to those expenses (or a formula from SBA).
Note that your pandemic-related revenue losses are reduced by any amounts received from the PPP First Draw and Second Draw loans in 2020 and/or 2021. However, any funding received from the Economic Injury Disaster Loans (EIDL) or Employee Retention Tax Credit (ERTC) will not count towards your 2020 revenues. Even so, you must make sure that the EIDL and/or ERTC funds are not used to cover the same expenses as the RRF grant.
What are Eligible Expenses?
The RRF is to help restaurant owners maintain operations. “Eligible Expenses” under the RRF include payroll, principal or interest on mortgage obligations, rent, utilities, maintenance including construction to accommodate outdoor seating, supplies such as protective equipment and cleaning materials, normal food and beverage inventory, certain covered supplier costs, operational expenses, paid sick leave, and any other expenses that the SBA determines to be essential to maintaining operations. (Note: you cannot use these funds to embark on re-designing the interior of your restaurant or to expand indoor seating.)
Eligible expenses are those incurred from February 15, 2020 to December 31, 2021 (the “Covered Period”), or a date determined by the SBA. If your business did not spend all of its RRF funds, or your business permanently closes before the end of the Covered Period, you must return unused funds to the Treasury.
When will the RRF grants be available?
We do not have a concrete date as to when the SBA will start taking RRF applications. According to Rep. Earl Blumenauer (D- Or.), the SBA will likely open up the RRF grant applications “within weeks, not months.”
The SBA’s current relief efforts can be found at http://www.sba.gov/coronavirusrelief, additional details about RRF grants will also be posted on the website.
What can you do to prepare?
We know demand will be extremely high for the RFF grants (remember the chaos around the first round of PPP loans). Therefore, we recommend you do everything to be as prepared as possible. While you wait for the RRF applications to open, you should (1) get your DUNS number here, and (2) get your SAM number here. You will need these numbers to register with the SBA in order to apply for the RRF grant. Also, you should begin compiling your receipts and financial statements to show your 2019 and 2020 revenues.
Should you apply for RRF and PPP?
Yes. Remember, there is no guarantee that everyone who is eligible for an RRF grant will actually receive it. Also, it is likely that RRF funds will run out very quickly.
If you are eligible for a PPP loan, the U.S. Chamber of Commerce suggests that you apply for it as soon as possible. Even though your RRF revenue losses are reduced by the amount of your PPP loan, if you are using the PPP funds correctly, your PPP loan will be forgiven, and the PPP program continues to be a viable lifeline for many businesses.
Should you have questions about your PPP or RRF applications, do not hesitate to contact the attorneys in Wendel Rosen’s Food & Beverage Practice Group. Our restaurant and café clients range from single location businesses to nationwide chains, and they routinely turn to us for guidance based upon our years of industry experience.
Covered supplier costs are expenditures for the supply of goods that (a) are essential to the operations of your business at the time at which the expenditure is made and (b) are made pursuant to a contract, order or purchase order (i) in effect at any time before the covered period with respect to the applicable covered loan or (ii) with respect to perishable goods, in effect before or at any time during the covered period.
Covered operations expenditures are any payments for any business software or cloud computing service that facilitates business operations; product or service delivery; the processing of payments or tracking of payroll expenses, human resources, sales and billing functions; or accounting or tracking of supplies, inventory, records and expenses.
 The deadline to apply for a PPP loan is March 31, 2021, and unless Congress extends the PPP, access to those funds will cease this month. For more information on PPP loans, please see https://www.wendel.com/publication/ppp-second-draw-loans-here-we-go-again/.