By Raffi Yousefian | Published 02/27/2021; Updated 04/19/2021 8:41:44 AM

Restaurant Revitalization Fund

The Restaurant Revitalization Fund is long overdue, but it’s finally here. It was recently signed into law as part of the American Rescue Plan Act. The fund establishes a $28.6 billion fund that will provide grants to restaurants and similar establishments to replace the revenue they would have earned if COVID didn’t happen. Restaurants have been asking for specific aid for their industry, and they finally got it. Here’s how it works (based on the information we know as of today):

An eligible entity will receive a tax-free grant amount equal to their pandemic-related revenue loss, that must be spent on qualified expenses over a covered period in 2021.

Each of these terms is defined below:

Eligible Entity

An eligible entity is an entity that owns a place of business where the public or patrons assemble for the primary purpose of being served food or drinks. This includes:

  • restaurants
  • food stands/food trucks/food carts
  • caterers
  • tavern/bar/lounge/saloon
  • inns with onsite sales of food and beverage to the public of at least 33% of gross receipts
  • brewery/brewpub/microbrewery/taproom/tasting room with onsite sales to the public of at least 33% of gross receipts
  • bakery that has onsite sales to the public of at least 33% of gross receipts
  • winery that has onsite sales to the public of at least 33% of gross receipts
  • distillery that has onsite sales to the public of at least 33% of gross receipts.
  • licensed facility or premises of a beverage alcohol producer where the public may taste, sample, or purchase products, or
  • other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink.

The entity must submit a good faith certification that the uncertainty of current economic conditions makes necessary the grant request to support ongoing operations and that they will spend the grant money on qualified expenses.

Disqualified Entities

The entity will be ineligible for an RRF grant if:

  • As of March 13, 2020, the entity 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
  • The entity has received a Shuttered Venues Operations Grant (SVOG) or has a pending SVOG application
  • The entity is a publicly traded corporation or is majority-owned and controlled by a publicly traded corporation
  • The entity does not have a place of business located in the U.S., does not operate primarily within the U.S., and does not make a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
  • The entity is a state- or local government-owned or operated business.
  • The entity is permanently closed. 
  • The entity filed for bankruptcy under Chapter 7 or is liquidating under Chapter 11.
  • The entity has filed for bankruptcy under Chapter 11, 12, or 13 but does not have an approved plan for reorganization

Grant Amount

The grant amount is as follows:

Grant amount = 2019 Revenue – 2020 Revenue* – Total PPP funds received 

For those not in operation for the entirety of 2019:

Grant amount = 2019 Annualized Revenue – 2020 Revenue* – Total PPP funds received 

For those not in operation until 2020, or not open as of March 11, 2021: 

Grant amount = Qualified Expenses incurred from 1/1/2020 3/10/2020 – 2020 Revenue* – Total PPP funds received 

The max amount of the grant is $10 million including affiliates** and is limited to $5 million per eligible entity.

*2020 revenue does not include proceeds from the PPP, EIDL, EIDL advance, or state and local small business grants. 

**An Affiliated Business or affiliate is a business in which an eligible entity has an equity interest or right to profit distributions of not less than 50 percent, or in which an eligible entity has the contractual authority to control the direction of the business, provided that such affiliation shall be determined as of any arrangements or agreements in existence as of March 13, 2020.

Qualified Expenses

Funds are not for any other purposes other than expenses related to:

  • Retain workers and maintain payroll*
  • Principal or interest on mortgage obligations excluding prepayments on principal 
  • Rent excluding prepayments 
  • Utilities
  • Maintenance 
  • Construction to accommodate outdoor dining 
  • Construction for walls, floors, deck surfaces, furniture, fixtures, and equipment
  • Supplies required by the public health department
  • Normal food and beverage inventory
  • Debt obligations to suppliers incurred before the covered period
  • Operational expenses
  • Paid sick leave
  • Any other expenses that Treasury determines to be essential to maintaining operations

*wages used to claim the employee retention credit (ERC) do not qualify

If an eligible entity that receives a grant fails to use all grant funds by March 11, 2023, or permanently closes before using all funds for authorized purposes, then they should return all unused funds to Treasury. 

Covered Period

The covered period is February 15, 2020, through March 11, 2023, but could potentially be extended. If the business permanently closes, the covered period will end when the business permanently closes or on March 11, 2023, whichever occurs sooner. 

Application Process

I’m sure most of you skipped all sections and came directly here. If so, I don’t blame you.

The RRF applications will be directly through the SBA, not through a bank like the PPP. Generally, grants will be awarded in the order in which applications are received. The applicant must certify that:

  • the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the eligible entity; and
  • the entity has not applied for or received a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act aka the Shuttered Venue Grant. 

The grants will be issued in tranches. The first tranche period is 21 days and includes $60 million specially allocated to the following small businesses: 

  • woman-owned small business 
    • 51% + women-owned
    • have the management and daily business operations controlled by one or more women
  • veteran-owned small business
    • 51% + veteran-owned
    • have the management and daily business operations controlled by one or more veterans
  • socially and economically disadvantaged owned small business
    • 51% + owned by one or more socially and economically disadvantaged individuals
    • have the management and daily business operations controlled by one or more socially and economically disadvantaged individuals 
    • Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities. This includes:
      • Black Americans;
      • Hispanic Americans;
      • Native Americans
        (including Alaska Natives and Native Hawaiians);
      • Asian Pacific Americans; or
      • Subcontinent Asian Americans
    • Economically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged. This includes:
      • In assessing economic disadvantage, SBA will look at whether the net worth of the individual claiming disadvantage is less than $750,000, excluding his or her ownership interest in the Applicant, primary personal residence, contingent liabilities, funds invested in an official retirement account, or income received from an S-corporation, LLC, or partnership if the individual provides documentation that the income was reinvested in the firm. SBA will also look at whether the adjusted gross income of the individual averaged over the preceding three years exceeds $350,000. Income received from an S-corporation, LLC or partnership that is reinvested in the firm or used to pay taxes arising in the normal operations of the firm is excluded. Finally, SBA will look at whether the fair market value of all the individual’s assets (excluding his or her ownership interest in the Applicant, primary personal residence, or funds invested in an official retirement account) exceeds $6 million. An individual who exceeds any of these thresholds for net worth, personal income, or total assets will generally be deemed to not be economically disadvantaged.

If an individual meets the requirements of more than one priority group category, that individual is only counted once. 

Also, $5 billion of the total $25 billion will be given to restaurants with <$500k in sales in 2019. 

As of today (4/19/2021), the application for this grant has yet to be released, but there is a draft application here. The SBA is expected to release the application at the end of April. We will continue to update this post as more information is released. In the meantime, here is what you can gather to prepare in advance:

  1. IRS Form 4506-T, completed and signed by Applicant. Completion of this form digitally on the SBA Grant Platform will satisfy this requirement.
  2. Applicants that:
    1. were in operation prior to or on January 1, 2019, must supply documentation of gross receipts for 2019 and 2020;
    2. began operations partially through 2019, must supply documentation of gross receipts for 2019 and 2020;
    3. began operations on or between January 1, 2020 and ending on March 10, 2021 and Applicants that have not yet opened but as of March 11, 2021, but have incurred eligible expenses, must supply documentation of gross receipts and eligible expenses for the length of time in operations.
  3. Support for gross receipts including any of the following:
    1. Business tax returns (IRS Form 1120 or IRS 1120-S);
    2. IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F;
    3. For a partnership: partnership’s IRS Form 1065 (including K-1s);
    4. Bank statements;
    5. Externally or internally prepared financial statements such as Income Statements or Profit and
      Loss Statements;
    6. Point of sale report(s), including IRS Form 1099-K* 
  4. For Applicants that are a brewpub, tasting room, taproom, brewery, winery, distillery, or bakery:
    1. documents evidencing that onsite sales to the public comprise at least 33% of gross receipts for each of the years included in your funding calculation, which may include Tax and Trade Bureau reports filed or to be filed that cover the period for which you are reporting gross receipts, or if applicable, eligible expenses.
  5. For Applicants that are an Inn:
    1. In addition to the documents in (1) above, documents evidencing that onsite sales of food and beverage to the public comprise at least 33% of gross receipts for each of the years included in your funding calculation.

*The 1099-K generally includes credit card tips as well, so make sure these aren’t being counted towards your gross receipts calculation. 

Taxability

Similar to the PPP, the RRF grants will not be included as federal taxable gross income by the IRS, and deductions for expenses using RRF funds will be allowed. However, the state tax treatment will vary by state. 

Please feel free to contact us if you have questions or need help with the application!