Restaurants have been severely impacted by COVID-19 because of permanent and temporary shutdowns that eliminated or reduced revenue, and the increased costs that many operators incurred to bolster take-out and delivery sales and accommodate a reduction to 25-50 percent of dine-in capacity. According to the National Restaurant Association, over 110,000 restaurants closed since March 2020.
The American Rescue Plan Act of 2021 (ARPA) became effective on March 11, 2021 and provides financial relief for restaurants and related food and beverage service businesses with its $28.6 billion Restaurant Revitalization Fund (RRF). The Small Business Administration (SBA) has been designated as the administrator of the RRF. Loan applications and forgiveness requests will not be required because the RRF is a grant program. However, applicants must certify that the grant is necessary to support ongoing operations.
Most restaurants and bars whose revenue in 2020 was less than their revenue in 2019 may apply for RRF grants. Independent and franchised restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, bakeries, brewpubs, tasting rooms and taprooms that earned at least a third of their revenues from the sale of food and beverages consumed on site; licensed facilities or premises of beverage alcohol producers where the public may taste, sample, or purchase products; and other similar places of business in which the public or patrons assemble for the primary purpose of being served food or alcohol, will be eligible for grant proceeds.
Eligible expenses allowed for deduction from revenue include principal and interest paid on mortgage obligations, payroll costs, paid sick leave, rent, utilities, maintenance, including construction for outdoor seating and related re-design, supplies, including protective equipment, food and beverage expenses and other operational expenses.
Businesses not eligible for RRF relief include those that have permanently closed and those operating under bankruptcy protection without a submitted or approved plan of reorganization, state and local government-owned establishments, publicly traded companies, businesses with more than 20 locations (including affiliates) as of March 13, 2020, and businesses that received grants under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
Eligible businesses will generally receive a grant equal to their “pandemic-related revenue loss” which has been defined as 2019 gross receipts minus 2020 gross receipts minus any Paycheck Protection Program or Economic Injury Disaster Loan amounts received to date.
Five billion of the fund has been allocated for businesses with gross revenues of $500,000 or less, and $23.6 billion has been allocated for businesses with gross revenues greater than $500,000. Grants cannot exceed $10 million per entity and $5 million per location.
If a business was not in operation for all of 2019, the maximum grant will be the average monthly gross receipts in 2020 less the average monthly gross receipts in 2019. If a business was not in operation for all of 2020, it could potentially receive a grant equal to the amount of eligible expenses invested in the business to date. RRF grants will be excluded from the gross income of the person who receives the funds, no deductions or basis increases will be denied, and no tax attributes will be reduced because of the ARPA’s gross income exclusion. RRF recipients must spend their funds by December 31, 2021. Unspent funds must be returned to the SBA.
The RRF will operate on a first-come, first-served basis and it is likely that the funds will be depleted quickly.
However, during the first 21 days of the program, priority will be given to small businesses owned and controlled by women, small businesses owned and controlled by veterans, and socially and economically disadvantaged small businesses.
The SBA system for accepting RRF applications was clarified on March 30, 2021 when the SBA announced that applicants will not be required to obtain either a Data Universal Numbering System (DUNS) number or an account with the government’s System for Award Management (SAM) website. This was welcome news since those registrations would add complexity and potential time delays to the application process.
Time is of the essence. RRF grants must be issued quickly since many operators are in desperate need of cash if they are to remain open and survive COVID-19. It remains to be seen if the SBA will be up to the task.
