Stimulus Bill Offers Much Needed Assistance to the Restaurant Industry

This client alert summarizes the eligibility criteria for, permitted uses of, and the amount of grants available under the Restaurant Revitalization Fund (Restaurant Revitalization Grants). An overview of the American Rescue Plan Act is provided here.

Eligible Businesses

Subject to certain conditions, a Restaurant Revitalization Grant may be available to businesses operated for the primary purpose of serving food or drink to patrons, including restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms and licensed facilities or premises of alcoholic beverage producers where the public may taste, sample or purchase products. Any such business operating in an airport terminal or that is tribally owned may also be eligible.

Limitations on Eligibility

In order to be eligible, applicants may not:

• Have had more than 20 locations operating as of March 13, 2020, including locations operating under different names and locations operated by affiliated businesses;
• Be majority owned or controlled by a company that is publicly traded;
• Have a pending application for, or have received, a Shuttered Venue Operators Grant under the program established by Section 324 of the Economic Aid Act (discussed here and here); or
• Be a business operated by a state or local government.

In addition, each applicant must certify that the uncertainty of current economic conditions makes a Restaurant Revitalization Grant necessary to support its ongoing operations.

Determination of Grant Amount

Restaurant Revitalization Grants are intended to provide relief for “pandemic-related revenue losses” suffered in 2020 and 2021 that were not mitigated by loans under the Paycheck Protection Program (PPP). When calculating its revenues, an eligible business should treat the amount of any PPP loans it has received as part of its post-pandemic gross receipts. The legislation does not specify whether only PPP loan amounts that have been forgiven should be considered gross receipts in 2020 and 2021, and we expect clarification of that point to be provided by the Small Business Administration.

The total amount of Restaurant Revitalization Grants received by a business and its affiliated businesses is limited to (1) $5 million for each physical location and (2) $10 million in the aggregate.

The legislation provides four different ways of calculating an applicant’s “pandemic-related revenue loss” and total grant amount, depending on the time period during which the applicant was operational.

1. If the applicant was operational for all of 2019, its “pandemic-related revenue loss” will be the amount by which its total gross receipts generated in 2019 exceeded its 2020 gross receipts. It would be eligible for grant funding equal to the amount of its “pandemic-related revenue loss” that exceeds the amount of PPP loans it received.
2. If an applicant was not in operation for the entirety of 2019, its annualized “pandemic-related revenue loss” would be 12 times (A) the average monthly amount of its gross receipts for the portion of 2019 during which it was operational minus (B) the average monthly amount of its gross receipts for 2020. Any PPP loans would then be deducted from that amount to arrive at the applicant’s eligible grant funding.
3. For applicants that only became operational sometime between January 1, 2020 and the date that the Restaurant Revitalization Fund is enacted, its “pandemic-related revenue loss” will be the amount by which (A) its “Eligible Expenses” (as described below) exceeds (2) its gross receipts during the time it has been operational. Only those applicants that were in operation on Feb. 15, 2020 need to reduce their revenue loss by any PPP loans because only businesses in operation on Feb. 15, 2020, would have been eligible to participate in the Paycheck Protection Program.
4. Restaurant Revitalization Grants are also available to businesses that become operational after the enactment of the Restaurant Revitalization Fund. Those applicants may consider the amount of any “Eligible Expenses” incurred prior to and on the date of enactment to be its “pandemic-related revenue loss” and therefore its eligible grant amount.

The legislation permits the Small Business Administration to establish an alternative formula for businesses that were operational for only a portion of 2019 and for businesses that became operational after Jan. 1, 2020.

Eligible Expenses

A Restaurant Revitalization Grant may be used for the following expenses incurred as a direct result of, or during, the COVID-19 pandemic:

• Certain payroll costs, including compensation, cash tips or the equivalent, payments for vacations and permitted leave, severance payments and costs related to other employee benefits. Payroll costs may not include any amount of employee compensation identified as “qualified wages” for purposes of obtaining the Employee Retention Tax Credit or any COBRA premiums used to obtain the related tax credit.
• Payments of rent, or principal or interest on any mortgage obligation (but not any prepayment of principal on a mortgage obligation or prepayment of rent).
• Utility payments and operational expenses.
• Maintenance expenses, including construction to accommodate outdoor seating as well as walls, floors, deck surfaces, furniture, fixtures and equipment.
• Purchases of supplies, including protective equipment and cleaning materials.
• Food and beverage expenses that are within the scope of the normal business operations of the applicant before Feb. 15, 2020.
• Payments to a supplier for goods that are essential to its operations under supply contracts, orders, or purchase orders in effect at the time of the grant, except that payments for perishable goods may be made under new contracts or orders.
• Paid sick leave and any other expenses that the Small Business Administration may allow.

Restaurant Revitalization Grants will not be subject to federal income tax, but any of the foregoing eligible expenses paid with grant proceeds, if ordinarily deductible as business expenses, will continue to be deductible for federal tax purposes.

Each recipient will be expected to return any grant amount not used by Dec. 31, 2021 or, at the discretion of the Small Business Administration, any later date that is within two years after the Restaurant Revitalization Fund is enacted.

Affiliation Concerns

A potential applicant must take into consideration any “affiliated business” when evaluating the number of locations and when determining the amount of the Restaurant Revitalization Grant it may be eligible to receive. With its affiliated businesses, an applicant may not have more than 20 locations. The total amount of Restaurant Revitalization Grants received by an applicant and all affiliated businesses is limited to $10 million.

An “affiliated business” of a grant applicant refers to any other business that has any one of the following relationships with the applicant as of March 13, 2020:

• The applicant owns at least 50 percent of the equity of the business.
• The applicant has the right to profit distributions of at least 50 percent.
• The applicant has contractual authority to control the direction of the business.

We anticipate that the SBA may expand this definition to include businesses under common control with the applicant.

Priority in Awarding Grants

During the initial 21-day period in which Restaurant Revitalization Grants are available, priority will be given to small business concerns that are owned and controlled by women, veterans, or socially and economically disadvantaged individuals, economically disadvantaged tribes and Native Hawaiian organizations, and $5 billion of the grant funds are initially reserved for issuance to eligible businesses that had gross receipts in 2019 of less than $500,000.

Looking Forward

The Small Business Administration is expected to issue detailed guidance regarding eligibility and application requirements, as well as other aspects of the receipt and use of Restaurant Revitalization Grants. Since the SBA will generally award grants to eligible businesses in the order in which the applications are received (subject to the priorities noted above), applicants should gather the necessary documentation and begin to prepare their applications as soon as the guidance is released.

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