Help is here for struggling restaurants. The ARP Act authorizes the SBA to provide assistance to eligible entities and their affiliated businesses to cover pandemic-related losses in the form of Grants under the Restaurant Revitalization Fund (RRF). The maximum grant per entity is $10 million per physical location and $5 million for its affiliates.
Those considered “eligible entities” are broadly defined as businesses where “the public or patrons assemble for the primary purpose of being served food or drink” and include:
- Food stands and food trucks
- Saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms and taprooms
- Licensed facilities or premises of a beverage alcohol producer where the public may taste, sample or purchase products
Eligible entities also include “affiliated businesses,” which are defined as businesses in which the eligible entity has an equity or right to profit distributions of not less than 50 percent or has the contractual right to control the business. (The interest or right to control must have been in existence as of March 13, 2020.)
Eligible entities cannot have more than 20 locations considering affiliates regardless of name, be publicly traded, nor have already applied under the Shuttered Venue Operators Grant.
The grant is limited to the entity’s “pandemic-related revenue loss” reduced by the entity’s cumulative PPP loans received. To determine this loss, one of the following is used:
- 2020 gross receipts subtracted from 2019 gross receipts, if the sum is greater than zero; or
- If the entity was not in business for the entirety of 2019, the difference between the product of its average monthly gross revenues in 2019 multiplied by 12, and the product of its average monthly gross receipts in 2020 multiplied by 12; or
- If the entity opened during the period beginning on January 1, 2020 and ending on the day before the enactment of the Act, the amount of its “eligible expenses” (which has the same meaning as in the CARES Act) less its gross receipts during that period; or
- If the entity has not yet opened as of the date of its grant application, the amount of its “eligible expenses” incurred as of the date of the Act.
Grant Covered Expenses
During the period beginning February 15, 2020, and ending December 31, 2021, the grant funds may only be used for the following expenses incurred “as a direct result of, or during, the COVID-19 pandemic” and include the following:
- Payroll costs (as that term is defined in the CARES Act for PPP loans)
- Principal and interest payments on any mortgage (but not a prepayment of principal)
- Maintenance expenses, including construction and furnishing costs for outdoor seating
- Supplies, including PPE and cleaning materials
- Food and beverage expenses that are within the normal scope of business of the eligible entity prior to February 15, 2020
- Covered supplier costs (as defined in the CARES Act for PPP loans)
- Operational expenses
- Paid sick leave
- Anything else determined by the SBA to be essential to maintaining the eligible entity
But watch out as the grant funds MUST be returned if the losses estimated in the grant application are less than actual, the entity goes out of business before using all the funds, or fails to use the funds before December 31, 2021, or other date the SBA may set that falls within 2 years after the date of the Act.
What is required?
Just like with PPP, eligible entities must certify in good faith on the application that:
- The uncertainty of the current economic conditions makes necessary the grant request to support ongoing operations of the eligible entity; and
- The eligible 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; and
- To the extent seeking priority for the application as described above, that the eligible entity is eligible for priority.
Other things to note…
During the first 60 days of enactment, $5 billion of the RRF is reserved for grants to eligible entities with gross receipts in 2019 of not more than $500,000. The remaining $23.6 billion is available during such period for “the Administrator to award grants … in an equitable manner to eligible entities of different sizes based on gross receipts.” After that initial 60-day period, the SBA can make grants to eligible entities regardless of annual gross receipts.
During the initial 21-day period in which the SBA is actually making grants (not the same as the initial 60-day period noted above that starts at enactment), the SBA will prioritize awarding grants for small business concerns owned and controlled by women, veterans, or socially and economically disadvantaged small business concerns.
What do you need to do NOW (do not wait)?
Because the funds are limited, applying as soon as the window opens will be critical. Originally the SBA said to be able to apply an entity would need a DUNS and SAM number to apply, but that requirement was removed last week. We don’t know what information will be needed to apply, but we can assume you will need Profit and Loss statements and tax returns. There is some indication that the information needed will be similar to that of what is listed on the” preliminary application checklist” for the Shuttered Venue Operators grant. That list of required information can be found here Shuttered Venue Operators Grant Preliminary Application Checklist (sba.gov)
Then get ready and wait because…
We don’t know when the applications will open, but the director of the Independent Restaurant Coalition (IRC) has expressed they are hopeful grants will be available this Spring and as soon as April. (Entities interested in obtaining RRF grants can keep a close eye on the SBA’s COVID-19 relief options web portal for timing.)
For further information check outrestaurantsact.com and the RRF here Restaurant Revitalization Fund (RRF) – Restaurants Act.
As always, Shannon & Associates LLP is here to help! If you have any questions get in touch with us today!