On March 11, 2021, the American Rescue Plan Act of 2021 (the "Act") was signed into law. The Act includes the Restaurant Revitalization Fund (RRF), a new grant program established to support restaurants, as well as a number of updates to existing programs.
The $28.6 billion RRF will be administered by the Small Business Administration (SBA), a federal agency dedicated to supporting small businesses. Although the RRF is a great win for the restaurant and hospitality industry, owners should be prepared to take advantage of the grant program as funds are likely to run out quickly.
Who is eligible?
Food service businesses that are eligible for the RRF include: restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products, and other similar places where the public or patrons assemble for the primary purpose of being served food or drink.
Food service businesses that are ineligible for the RRF include: publicly traded companies, restaurants with over 20 locations (together with affiliated businesses) regardless of multiple or different operating names, companies who have applied for a Shuttered Venue Operator grant, or state or local government-operated businesses.
Priority of Grants Awarded
The grants will be awarded based on priority. During the initial 21-day period, the SBA will prioritize awarding grants to eligible entities that are controlled and owned by women, veterans, or the socially and economically disadvantaged. $5 billion will be set aside specifically for eligible businesses with gross revenue of $500,000 or less in 2019.
How should you calculate the grant?
The maximum grant amount available is $5 million per physical location or $10 million per business (includes affiliated businesses). Eligible businesses may receive grants equal to their “pandemic-related revenue loss.” The grant amount is calculated based on the reduction of gross receipts in 2020 as compared to 2019. Eligible businesses’ pandemic-related revenue loss must also be reduced by any 1st draw and 2nd draw Paycheck Protection Program (“PPP”) loans received, regardless of whether or not the loans were forgiven or are expected to be forgiven. Gross receipts include funds received from the PPP loans, regardless of whether the loans were, or will be, forgiven. Unless additional guidance states otherwise, eligible businesses can assume that all revenues are eligible to be included in this calculation.
Certain provisions for businesses not in operation for all of 2019 or 2020 are as follows:
Which expenses are eligible?
Eligible expenses for purposes of the RRF consist of:
Eligible expenses are those incurred from February 15, 2020 to December 31, 2021 or may be an alternative date to be determined by the Administrator that is not later than two years after the date of the RRF enactment (the “Covered Period”). If an eligible business does not use all grant funds or permanently ceases operations on or before the last day of the Covered Period, any remaining funds must be returned to the Treasury.
How will the grants be taxed?
Based on current guidance, RRF grants are not taxed as income and all standard federal tax deductions are allowed.
How to apply for the grant?
The SBA is expected to release rules for applying, as well as applications, in April.
All in all, the RRF will help eligible businesses in these challenging times, however, businesses should be diligent and detail-oriented when calculating the RRF grant amount, the Employee Retention Tax Credit (ERTC) for both 2020 and 2021, PPP (first loans and second loans) forgiveness, as well as tax reporting and filing for 2020 and 2021. The ERTC is discussed in Part 2 of this article. Each of these has very specific nuances and rules that can impact each other. With the proper research and planning, eligible businesses can combine the perfect quantities of “ingredients” from the RRF and ERTC for the most superior “recipe” to get back on top. But proceed with caution - if businesses do not pay attention, they could be at risk of leaving money on the table – a lot more than a tip.
The guidelines surrounding federal COVID-19 relief programs frequently change and are complex. If you have any questions relating to how the extension or modifications will affect your restaurant business’s claiming the ERTC, please reach out to a member of our Restaurant and Hospitality Practice.