All There Is To Know About The Restaurant Revitalization Stimulus Rules
On March 11th, 2021, President Biden signed the latest COVID-19 stimulus package, known as the American Rescue Plan Act of 2021. The Act comes just in time, because many COVID-19 relief measures were set to expire on March 14th.
The American Rescue Plan Act authorized and allocated $28.6 billion to the Restaurant Revitalization Fund program. Monies from this fund are to be paid as tax-free grants to restaurants, bars, and associated food and beverage related businesses in order to provide them with compensation for their reduced revenues of 2020. With recent studies estimating the number of restaurants and bars in the U.S. at 1,000,000; this law allots roughly $28,600 for each eligible entity. Entities that receive funds under this program may use them for continuing operating expenses and for certain other permissible expenditures which are detailed further below.
In order to receive this grant, the applicant must verify under penalty of perjury that the funds are reasonably necessary to support the ongoing operation of the business. Restaurants that are profitable and well capitalized are not going to be able to satisfy that requirement and may risk white-collar prosecution and penalties. The grants given are going to be in the public record and competitors will likely report their colleagues if they believe that the funds were not necessary. This is unlike the PPP program where there are safe harbors for loans under $2 million dollars under certain circumstances. No such safe harbor presently exists under the necessity requirement. The details of the Restaurant Revitalization Fund are discussed below.
Is My Restaurant or Bar an “Eligible Entity” for purposes of qualifying for the Restaurant Revitalization Fund?
The Act provides a broad definition of what is considered an “eligible entity” for the purposes of the Restaurant Revitalization Fund. A non-exhaustive list of these entities include:
- food stands;
- food trucks;
- brew pubs; or
- similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink.
The American Rescue Plan Act of 2021’s language dealing with “eligible entities” reads as follows:
(4) ELIGIBLE ENTITY.—The term “eligible entity”—
(A) means a restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise 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 or drink;
(B) includes an entity described in subparagraph (A) that is located in an airport terminal or that is a Tribally-owned concern
For the purpose of the Restaurant Revitalization Fund, an affiliated business is a business that an eligible entity has an equity or right to profit distributions of at least 50 percent or has the authority to control the direction of the business since before March 13, 2020.
A publicly traded company is one that is majority owned or controlled by an entity that issues ownership shares and whose securities are listed on a national securities exchange.
Section 124.3 of Title 13 defines a tribally owned business as “any concern at least 51 percent owned by an Indian tribe”.
The new law also details what businesses do not qualify as eligible entities. These entities include:
1) “state or local government-operated businesses”;
2) businesses that “own or operate (together with any affiliated business)” more than 20 locations, regardless of whether those locations do business under the same or multiple names;
3) businesses with a pending application for or have received a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (title III of division N of Public Law 116-260); or 4) publicly-traded companies, by reason of the following language under the Act: or
4) publicly-traded companies (franchisees of publicly-traded companies may still qualify).
In addition to qualifying as an eligible entity, a business must also show that they have suffered a pandemic-related loss. In order to do so, an entity only needs to show that they had less gross receipts in 2020 than they did in 2019, but PPP loan proceeds are considered to be revenues for purposes of this calculation.
Therefore, under this new law, if your business kept the same pricing, sold one less side order of fries in 2020 compared to 2019, and received no PPP loan, your restaurant has suffered a pandemic-related loss. While it is easy to have a pandemic-related loss under this provision, the law does require a good-faith showing that the receipt of funds under this section is necessary to continue business operations in the current uncertain economic times.
Additionally, your entity must not have previously applied for or received a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
For eligible entities that were not in operation for all of 2019 or just opened in 2020, the bill provides the following guidance to determine if they have suffered a pandemic related loss:
(B) if the eligible entity was not in operation for the entirety of 2019—
(i) the difference between—
(I) the product obtained by multiplying the average monthly gross receipts of the eligible entity in 2019 by 12; and
(II) the product obtained by multiplying the average monthly gross receipts of the eligible entity in 2020 by 12; or
(ii) an amount based on a formula determined by the Administrator;
How Much Will My “Eligible Entity” Receive?
Based upon the above you should know if an eligible entity qualifies to receive Restaurant Revitalization Funds. The next question is how much will be received.
The general provision is that an eligible entity is able to receive an amount equal to the suffered pandemic loss, but not exceeding up to $10 million for each eligible entity or $5 million per physical business location.
In order to calculate the loss in revenue an eligible entity suffered in 2020, a taxpayer must first subtract 2020 gross receipts from 2019 gross receipts. As noted above, this amount of losses must be reduced by the amount of loans received from either the First Draw or Second Draw of PPP loans in 2020 or 2021. It is worth noting, however, that Economic Injury Disaster Loans (EIDL) or funds received through the Employee Retention Tax Credit (ERTC) program will not count towards reducing revenues. If you would like to know more about the EIDL program, click HERE. For more information on the ERTC program, click HERE.
What Can The Restaurant Revitalization Funds Be Used For?
Restaurants who receive Restaurant Revitalization Funds can use them for a wide variety of “eligible expenses” that are either incurred as a direct result of, or during, the COVID-19 pandemic in order to maintain business operations. The Rescue Act lists these expenses as follows:
(A) Payroll costs.
(B) Payments of principal or interest on any mortgage obligation (which shall not include any prepayment of principal on a mortgage obligation).
(C) Rent payments, including rent under a lease agreement (which shall not include any prepayment of rent).
(E) Maintenance expenses, including—
(i) construction to accommodate outdoor seating; and
(ii) walls, floors, deck surfaces, furniture, fixtures, and equipment.
(F) Supplies, including protective equipment and cleaning materials.
(G) Food and beverage expenses that are within the scope of the normal business practice of the eligible entity before the covered period.
(H) Covered supplier costs, as defined in section 7A(a) of the Small Business Act (as redesignated, transferred, and amended by section 304(b) of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Public Law 116–260)).
(I) Operational expenses.
(J) Paid sick leave.
(K) Any other expenses that the Administrator determines to be essential to maintaining the eligible entity.
How Long do I have to Use my Funds?
As the bill is currently written, the “covered period” is scheduled to end on December 31, 2021, which means any unused funds must be returned on that date. However, the section leaves the Small Business Administration the authority to extend this period as far out as 2 years after the Rescue Act is signed into law.
There is no definition in the statute that defines when the Covid-19 pandemic will end, as Congress is clearly not psychic. Restaurants, bars, and other eligible entities may be well advised to spend the money earlier than later in case the current crisis is over by June or July.
What Types of Restaurants Will Get Priority?
The Small Business Administration will begin by prioritizing eligible entities owned by women, veterans, and businesses that are socially and economically disadvantaged. The specific language establishing this initial period is provided below.
A) IN GENERAL.—During the initial 21-day period in which the Administrator awards grants under this subsection, the Administrator shall prioritize awarding grants to eligible entities that are small business concerns owned and controlled by women (as defined in section 3(n) of the Small Business Act (15 U.S.C. 632(n))), small business concerns owned and controlled by veterans (as defined in section 3(q) of such Act (15 U.S.C. 632(q))), or socially and economically disadvantaged small business concerns (as defined in section 8(a)(4)(A) of the Small Business Act (15 U.S.C. 637(a)(4)(A))). The Administrator may take such steps as necessary to ensure that eligible entities described in this subparagraph have access to grant funding under this section after the end of such 21-day period.
What Should I Do Now?
It is still unclear when the applications will open for this new round of funds that will become available to Americans, although Rep. Earl Blumenauer (D – Or.) stated in a press conference on March 10th that he expects the grant applications to open “within weeks, not months.”
For individuals and businesses who have not yet applied for federal grants, it is important to register to receive a DUNS number, which is a nine-digit ID number that is necessary for registering on Grants.gov. Click HERE for more information on the DUNS Number system.
Individuals who qualify for PPP loans and the RRF grant should still apply for both even though the RRF grant total is reduced by the amount of PPP loans received, as PPP loans will be forgiven if the funds are used appropriately and in a timely manner. The PPP is a much larger program than the RRF, which will likely run out of funding relatively quickly, and is available to a wider array of struggling entities. For a discussion on recent changes to PPP loan rules governing sole proprietors and independent contractors, click HERE.