The $1.9 trillion stimulus package, known as the American Rescue Package (the “Rescue Package”), enacted on March 11, 2021, established a $28.6 billion Restaurant Revitalization Fund (“Restaurant Fund”) for restaurants and other food establishments. Section 5003 of the Rescue Package instructs the Small Business Administration (“SBA”) to award tax-free federal grants (“Grants”) to eligible entities.

Who Qualifies for a Grant?

An “Eligible Entity” is any

• Restaurant;
• Food stand, food truck or food cart;
• Saloon, inn, tavern, bar lounge, or brewpub, tasting room, taproom; or
• Any licensed facility or premises of a beverage alcohol producer 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 and drink (collectively, “Eating Establishments”).

Eating Establishments are eligible for a Restaurant Fund if they have incurred a “Pandemic-Related Revenue Loss” for the period beginning February 15, 2020, and ending December 31, 2021, or a date set by the SBA, which cannot be later than March 11, 2023 (“Covered Period”).

A “Pandemic-Related Revenue Loss” is the amount by which the gross receipts for calendar 2019 exceed gross receipts for calendar 2020; but if

• an Eating Establishment was not in operation for the entire 2019 year, then the Pandemic-Related Revenue Loss is either (a) the difference between (i) the product of the average monthly gross receipts of the eligible entity in 2019 multiplied by 12 months and (ii) the product of the average monthly gross receipts of the eligible entity in 2020 multiplied by 12 months or (b) the amount based on a formula determined by the SBA.

• an Eating Establishment opened during the period beginning on January 1, 2020, and ending on March 10, 2021, then the Pandemic-Related Revenue Loss is either (a) the amount of its “Payroll Costs” (which has the same meaning as defined in the CARES Act for the Paycheck Protection Program (“PPP”) loans) incurred minus any gross receipts received or (b) the amount based on a formula determined by the SBA.

• an Eating Establishment which is not yet in operation as of the date of its application for a Grant but has incurred expenses for which Grant proceeds may be used (“Eligible Expenses”), then the Pandemic-Related Revenue Loss is either (a) incurred Eligible Expenses or (b) the amount based on a formula determined by the SBA.

An Eating Establishment is excluded from being an Eligible Entity and cannot qualify for a Grant if it

• as of March 13, 2020, owned or operated (together with its affiliated business) more than 20 locations regardless of whether those locations do business under the same or multiple names. “Affiliated business” means a business in which the Eating Establishment has an equity or right to profit distributions of 50% or more or has the contractual right to control the business. We expect the SBA to issue its own guidance as to the meaning of an “affiliated business” since the definition in Section 5003 of the Rescue Package can be read to exclude an entity controlling an Eating Establishment and entities under common control with the Eating Establishment.

• has a pending application for, or has received a grant under the Operators Grant program established by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Venue Grant”).

• is a publicly traded company or a state or local government-operated business.

How Is the Amount of the Grant Calculated?

The Grant amount will be the amount of the Pandemic-Related Revenue Loss reduced by the amount of any PPP loans. In addition, the aggregate Grant amount to an Eligible Entity and its affiliated businesses may not exceed $5 million per location and $10 million in the aggregate.

What Can the Grant Be Use For?

The Grant can be used for the following qualified expenses:

• Payroll costs (but not including wages used for the Employee Retention Credit);
• Principal or interest on any mortgage obligations (which shall not include any prepayment of principal on a mortgage obligation);
• Rent payments, including rent under a lease agreement (which shall not include any prepayment of rent);
• Utilities;
• Maintenance expenses, including construction to accommodate outdoor seating and walls, floors, deck surfaces, furniture, fixtures, and equipment;
• Supplies, including personal protective equipment, and cleaning materials;
• Food and beverage expenses that are within the scope of the normal business practice of the eligible entity before the Covered Period;
• Covered supplier costs (which has the same meaning as defined in the CARES Act for PPP loans);
• Operational expenses;
• Paid sick leave; and
• Any other expenses the SBA determines to be essential to maintaining operations during the Covered Period.

Restaurant Fund Lending Priorities and Limitations

During the initial 21-day period during which Grants are awarded, the SBA is required to prioritize Grants to small businesses owned by women or veterans and to socially and economically disadvantaged small businesses. In addition, until May 10, 2021, $5 billion of the Restaurant Fund shall be reserved for businesses with 2019 gross receipts of $500,000 or less.

Required Good Faith Certificate

An Eligible Entity applying for a Grant is required to in good faith certify that:

1. The uncertainty of current economic conditions makes necessary the Grant request to support the ongoing operations of the eligible entity; and
2. The eligible entity has not applied for or received a grant under Venue Grant.

Grant Funds Required to Be Returned

The Grantee will be required to return Grant funds if:

• Grantee fails to use all of the grant funds before the last day of the Covered Period;
• Grantee goes out of business before spending all of the Grant funds; or
• Grantee’s Pandemic-Related Revenue Losses are estimated in its Grant application and the estimate overstates the losses.

Estimated Time Frame

While the SBA has not released details regarding the Grant application release date at the time of this publication, the National Restaurant Association has shared its anticipated timeline, which is:

• April 2021 – SBA releases Grant applications, rules and guidance. As noted earlier, we expect the SBA will provide guidance as to whether “affiliated business” includes an entity controlling an Eating Establishment and entities under common control with the Eating Establishment.
• May/June 2021 – During the initial 21-day period, the SBA will begin awarding Grants to small businesses owned by women or veterans and to socially and economically disadvantaged small businesses.
• May/June 2021 – Grant applications will be accepted from all Eligible Entities.

McCarter & English, LLP, will continue to provide updates regarding the Rescue Package, Restaurant Funds and related Grants

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