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What you need to know: The $28.6 billion Restaurant Revitalization Fund

In an effort to help restaurants and bars recover from the financial impact of COVID-19, the American Rescue Plan Act established a $28.6 billion “Restaurant Revitalization Fund” (RRF) within the U.S. Small Business Administration (SBA). Read below to learn more.

About the grants

A tax-free federal grant equal to the amount of its pandemic-related revenue loss may be given to an eligible business and is calculated by subtracting the business’ 2020 gross receipts from its 2019 gross receipts. If the business:

  • Was not in operation for the entirety of 2019, the total is the difference between 12 times the average monthly gross receipts for 2019 and the average monthly gross receipts in 2020 (or a formula from SBA)
  • Was not in operation until 2020, it can receive a grant equal to the amount of “eligible expenses” subtracted by its gross receipts received (or a formula from SBA)
  • Is not yet in operation as of the application date, but it has made “eligible expenses,” the grant would be made equal to those expenses (or a formula from SBA)

Consider 1st and 2nd draw PPP loan funds

Pandemic-related loss in revenue for businesses are reduced by any amounts received from the Paycheck Protection Program (PPP) First Draw and Second Draw loans in 2020 and/or 2021.

How will grants be distributed?

Awards can be adjusted by the SBA based on demand and “relative local costs” in the markets where RRF businesses operate. Otherwise:

  • The SBA can award $23.6 billion in an equitable manner to businesses of different sizes based on annual gross receipts
  • $5 billion is available to businesses with gross receipts of $500,000 or less during 2019
  • Maximum: The total grant amount for an eligible business and any affiliated businesses is capped at $10 million and is limited to $5 million per physical location of the business

Prioritization

For an initial 21-day period, the SBA will prioritize awarding grants for small business concerns owned and controlled by women, veterans, or socially and economically disadvantaged small business concerns.

Covered period

Eligible expenses include those incurred from February 15, 2020 to December 31, 2021, or a date determined by the SBA. If all grant funds are not spent by the business, or the business permanently closes before the end of the covered period, the business must return unused funds to the Treasury.

Eligible expenses

Funds must be spent on:

  • Payroll
  • Principal or interest on mortgage obligations
  • Rent
  • Utilities
  • Maintenance including construction to accommodate outdoor seating
  • Supplies such as protective equipment and cleaning materials
  • Normal food and beverage inventory
  • Certain covered supplier costs
  • Operational expenses
  • Paid sick leave
  • Any other expenses that the SBA determines to be essential to maintaining operations

Is your restaurant business eligible?

A business is eligible if it owns or operates 20 or fewer establishments (together with any affiliated business), regardless of ownership type of the locations and whether those locations do business under the same or multiple names, as of March 13, 2020. An affiliated business has an equity or right to profit distribution of 50 percent or more, or has 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.”

  • Eligible entities 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 other similar place of business where the public or patrons assemble for the primary purpose of being served food or drink
  • Entities can apply using their existing business identifiers, as the SBA will avoid imposing additional burdens on applicants
  • Publicly-traded companies are ineligible
  • Entities must submit a good faith certification that:
    - Uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations
    - The entity has not applied for nor has received a “Shuttered Venue Operators” grant (generally for performing arts, live venues, theaters, etc.)

Tax treatment

Grants are not taxed like income and all normal federal tax deductions are protected.

  • New limitations on private funds and anti-evasion
Todd C. Bernhardt
Partner, CPA