President Biden signed the American Rescue Plan Act of 2021 (ARP Act) into law on March 11, 2021, which provides more than just individual stimulus payments and money to fight the coronavirus pandemic. It also includes targeted relief for businesses affected by the pandemic. Perhaps no industry was more negatively affected by the pandemic than the hospitality industry, including bars and restaurants. Sporadic shutdowns, capacity limitations, and weakened consumer confidence has strained the financial wherewithal for many bar and restaurant owners. Fortunately, additional relief for these businesses is on the way. The ARP Act established the Restaurant Revitalization Fund to provide tax-free grants as a lifeline to qualified hospitality businesses that are looking to scale up operations and regain their footing.
Overview of the Restaurant Revitalization Fund
An eligible entity (together with affiliated businesses of the eligible entity) can apply for a Restaurant Revitalization Grant that will be awarded with respect to “pandemic-related revenue losses.” The Small Business Administration (SBA) will administer these grants made out of the Restaurant Revitalization Fund.
The ARP Act appropriates a total of $28.6 billion for the Restaurant Revitalization Fund. Within the larger fund, $5 billion is earmarked to eligible entities with gross receipts during 2019 of less than $500,000, while the remaining $23.6 billion is available to any other eligible entity. Grants are limited to $10 million for each eligible entity, with a limit of $5 million for each physical location within an eligible entity. Importantly, the ARP Act mandates that the first 21 days of the program be reserved to prioritize small businesses owned by women, veterans, or socially and economically disadvantaged individuals.
These cash grants function similarly to the Paycheck Protection Program (PPP) loans in that they must be used for “eligible expenses” incurred during the “covered period,” including:
- Payroll (excluding amounts used to claim an employee retention credit or to claim the new COBRA Premium Subsidy tax credit)
- Mortgage principal and interest (excluding prepayment)
- Rent (excluding prepayment)
- Food and beverage expenses
- Operational expenses
- Supplies, including protective equipment and cleaning materials
- Outdoor seating construction
- Maintenance expenses, including walls, floors, deck surfaces, furniture, fixtures, and equipment
- Covered supplier costs (payments to suppliers for the supply of goods that are essential to business operations)
- Paid sick leave
- Other "essential" expenses, as determined by the SBA.
The covered period for Restaurant Revitalization Grants begins on Feb. 15, 2020 and ends on Dec. 31, 2021, so all of the aforementioned expenses must be incurred during this period. The SBA may extend this period for two full years if conditions warrant. Thus, unless the period is extended, grant funds not used by the end of 2021 must be returned to the SBA. Unused grant funds must also be returned if the business permanently closes during the covered period.
Similar to the recent change to the tax treatment of expenses paid out of forgiven PPP loans, these grants are not taxable and expenses paid out of grant funds remain deductible.
Entities Eligible for Grants
An eligible entity is defined broadly to include 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 similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink. These include entities located in an airport terminal or that are Tribally-owned concerns.
However, an eligible entity does not include any entity that owns or operates (together with any affiliated business) more than 20 locations, regardless of whether those locations do business under the same or multiple names. An eligible entity also excludes one that received or has a pending application for a “Shuttered Venue Operators” grant. Furthermore, publicly traded companies and state or local government-operated businesses are also ineligible for this grant.
On the other hand, unlike the grant for Shuttered Venue Operators, which forces a business owner to pick from either a PPP loan or a grant, these Restaurant Revitalization Grants can be obtained even if a PPP loan was also obtained.
Determining the Restaurant Revitalization Grant Amount
The amount of the grant is based upon an eligible entity’s “pandemic-related revenue loss.” Generally, this is the revenue loss incurred during calendar year 2020 compared to calendar year 2019. The specific calculation is generally performed in two steps.
The first step is to subtract 2020 gross receipts from 2019 gross receipts. The second step is to reduce this result by any amounts received during 2020 or 2021 from a covered loan made under the PPP program. In this sense, an eligible entity is not deemed to experience a revenue loss to the extent that a PPP loan is received; it does not matter whether the PPP loan is subsequently forgiven. That said, the grant amount may be used toward the same eligible expenses that might have formed the basis for PPP loan forgiveness. Apparently, the reduction to the total possible grant amount for PPP loans remediates concerns of a double benefit that would result when grant funds and PPP loans are both designated as used on the same eligible expenses. The SBA may clarify this issue in subsequent guidance.
Businesses that began operations after Jan. 1, 2020 may use an alternate calculation to determine the pandemic-related revenue loss. This is generally based on the excess of eligible expenses over any gross receipts received. For businesses that started during 2019, the revenue loss generally is the difference between the average monthly gross receipts for 2020 (multiplied by 12) and the average monthly gross receipts for 2019 (multiplied by 12). And finally for businesses not yet in operation as of the application date, the grant will be based on eligible expenses. In all of these cases, including businesses founded before Jan. 1, 2019, the SBA may propose an alternative formula.
An eligible entity’s pandemic-related revenue loss equals its grant amount, subject to the $10 million and $5 million limitations discussed previously. Hence, an eligible entity may obtain this maximum amount even if a PPP loan was also received, provided the eligible entity’s revenue loss equals an amount that is at least the sum of this maximum plus the amount of the PPP loan received. Also, the SBA may further adjust grants made under this program based on demand and based on relative local cost where the business is located.
As of the date of this writing, the SBA has not issued the application form or launched the application process for grants made out of the Restaurant Revitalization Fund. As soon as the process commences, prioritized small businesses (those owned by women, veterans, or socially and economically disadvantaged individuals) should act quickly to take advantage of these grants. Until the time that the SBA launches the program, an eligible entity desiring to claim a Restaurant Revitalization Grant should take some immediate steps to prepare for its grant application. For instance, eligible entities should be able to apply using existing business identifiers in order to avoid additional SBA filing burdens. These identifiers can be obtained by registering for an Active System of Award Management Account (SAM), and by registering to obtain a Data Universal Number System (DUNS) number. Again, businesses that do not have these identifiers should commence the registration process immediately, in order to minimize processing time once the SBA launches the grant application process.
For more information regarding the Restaurant Revitalization Fund, please contact us.
Published on March 24, 2021