American Rescue Plan Serves Up $28 Billion in Much-Needed Relief for Restaurants and Hospitality Industry

When President Biden signed the American Rescue Plan into law on March 11, he delivered long-awaited financial assistance for restaurants and other hospitality businesses struggling to recover from the COVID-19 pandemic.

Bar and restaurant owners who qualify for the $28.6 billion Restaurant Revitalization Fund (RRF) could receive grants of up to $10 million to cover pandemic-related revenue losses and help them maintain their operations.

The U.S. Small Business Administration (SBA) will administer and disburse the RRF funds directly to approved applicants.  Applicants can start to register for an account in advance at restaurants.sba.gov starting Friday, April 30, 2021, at 9:00 a.m. EDT, and applications can be submitted starting May 3, 2021.  The SBA encourages qualifying applicants to familiarize themselves with the application process in advance and has also posted a sample application, FAQs, and program guide on its website.

Unlike the funds provided through the Paycheck Protection Program, the financial assistance received through the RRF consists of grants, not loans. Qualifying recipients do not need to repay these funds, except for any proceeds unused by a grantee at the program’s conclusion.

As restaurateurs, bar owners, and others in the hospitality industry anxiously await the start of the application process, here are the basics you need to know about the RRF.

Eligibility for Restaurant Revitalization Fund Grants

Generally, licensed entities and businesses where patrons gather for the primary purpose of being served food or alcohol are eligible to receive an RRF grant. Such businesses include:

• Restaurants.
• Bars, Taverns, Lounges, and Saloons.
• Food Trucks and Food Carts.
• Snack and Nonalcoholic Beverage Bars.
• Food Stands.
• Caterers.
• Licensed facilities or an alcoholic beverage producer’s premises where patrons may sample, taste, or purchase products.
• Other businesses where patrons gather for the primary purpose of being served food or alcohol.

The following businesses are also eligible for an RRF grant if they submit documentation with their applications that reflect that at least 33 percent of their 2019 gross receipts came from on-site sales of food and beverages:

• Inns.
• Breweries, Brewpubs, Microbreweries, Taprooms, and Tasting Rooms.
• Wineries.
• Distilleries.
• Bakeries.

Permanent Closure, Bankruptcy, Publicly Traded Companies and Other Disqualifiers

An otherwise qualifying entity is ineligible for an RRF grant if it:

• Owns and operates (along with any affiliated businesses) more than 20 locations as of March 13, 2020, regardless of whether they do business under the same or multiple names.
• Is a publicly traded corporation.
• Is controlled and majority-owned by a publicly traded entity.
• Is permanently closed.
• Has filed for bankruptcy under Chapter 7 or is liquidating under Chapter 11.
• Has filed for bankruptcy under Chapter 11, 12, or 13 but does not have an approved reorganization plan.
• Has obtained a Shuttered Venues Operators Grant (SVOG) or has a pending SVOG application.
• Does not have a place of business in the U.S. or does not operate primarily within the U.S.
• Is state- or local government-owned or operated.

RRF Grant Amounts

Generally, the SBA will determine the amount of an RRF grant based on an applicant’s pandemic-related revenue losses. The minimum amount of an RRF grant is $1,000 and can go up to $5 million per location. However, a grant cannot exceed $10 million total for the applicant and any affiliated businesses.

The SBA’s program guide contains detailed instructions for calculating revenue loss for an RRF grant. The basic formula is:

• For applicants in operation prior to or on January 1, 2019, subtract 2020’s Gross Receipts (defined below) and PPP Loan amounts from 2019’s Gross Receipts.
• For applicants that began operations partially through 2019,  the application amount is calculated as follows: (Average 2019 monthly Gross Receipts x12) minus 2020 Gross Receipts minus PPP loan amounts.
• For applicants that began operations between January 1, 2020, and March 10, 2021, and applicants that have not yet opened but have incurred eligible expenses, the application amount is equal to the amount spent on “Eligible Expenses” (defined below) between February 15, 2020, and March 11, 2021 minus 2020 gross receipts minus 2021 gross receipts (through March 11, 2021) minus PPP loan amounts.

By March 11, 2023, grant recipients must spend all RRF funds on “Eligible Expenses” incurred between February 15, 2020, and March 11, 2023. If a business permanently closes, the covered period for Eligible Expenses will end as of its closing date or on March 11, 2023, whichever occurs earlier. If a grantee does not spend all of its funds or permanently closes before the end of the applicable covered period as described above, it must return any unused funds to the government.

“Eligible Expenses” Defined

Eligible Expenses for RRF grants include:

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

“Gross Receipts” Defined

The amounts required to calculate gross receipts varies by the entity tax return type:

• For self-employed individuals (IRS Form 1040 Schedule C): line 3 (If you file multiple Schedule C forms on the same Form 1040, you must sum across all of them)
• For partnerships (IRS Form 1065): line 1c
• For S-Corporations (IRS Form 1120-S): line 1c
• For C-Corporations (IRS Form 1120): line 1c
• LLCs: Use one of the above
• B Corporations: Use line 1c from either IRS Form 1120 or 1120S

If an Applicant’s gross receipts include any of the following, the amount associated with the following should be subtracted from gross receipts:

• Paycheck Protection Program (PPP) loan (First Draw PPP Loan or Second Draw PPP Loan);
• SBA Section 1112 payments;
• SBA Economic Injury Disaster Loan (EIDL) loan, EIDL Advance, Targeted EIDLAdvance;
• Randolph-Sheppard Act Financial Relief and Restoration Payments (FRRP)Appropriation;
• Any state and local small business grants (via CARES Act or otherwise);
• Taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers (this does not include taxes levied on the concern or its employees);
• Proceeds from transactions between a concern and its domestic or foreign Affiliates; and
• Amounts collected for another by a travel agent, real estate agent, advertising agent,
• conference management service provider, freight forwarder, or customs broker.

All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.

Impact of Other Pandemic Relief Payments

As indicated in the discussion above concerning the formulas for calculating the application amount, when determining RRF grant amounts, the SBA will reduce pandemic-related revenue losses by any PPP proceeds the applicant received in 2020 and 2021 from the program’s “First Draw” and “Second Draw” loans.

Conversely, the SBA will not count any Economic Injury Disaster Loans (EIDL) or Employee Retention Tax Credit (ERTC) funds received towards 2020 revenues. Nevertheless, grant recipients should ensure that they do not use EIDL or ERTC funds for the same expenses as the RRF grant.

The $28.6 billion appropriated for the RRF will remain available until expended. There are currently no plans for additional funding, so interested businesses should be ready to submit their applications as soon as possible after the SBA opens the process on May 3. 

If you have questions regarding the Restaurant Revitalization Fund or have any other concerns or issues related to the COVID-19 pandemic, please contact the Business Law Practice Group at Kreis Enderle today.