Restaurant owners have been patiently waiting for the Small Business Administration (“SBA”) to open the Restaurant Revitalization Fund (“RRF”) since the passing of the American Rescue Plan Act on March 11, 2021. The SBA announced this week that registration for the SBA application portal will begin on Friday, April 30, 2021, at 9 am ET and applications will open on Monday, May 3, 2021, at noon ET. Here is what you need to know.
1. Who can apply?
Think outside the box on this one. It is not just full-service restaurants, but includes food stands, food trucks, food carts, caterers, bars and taverns, snack and nonalcoholic beverage bars (who doesn’t love a good coffee!)
Other potential entities that could apply include brewpubs, tasting rooms, taprooms, breweries or microbreweries, wineries and distilleries, inns and licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products. Upstate New Yorkers are automatically thinking of their beloved wineries in the Finger Lakes. In order to be eligible, these businesses must provide documentation with their application that on-site sales to the public comprised at least 33% of gross receipts in 2019. There are special rules for businesses who opened in 2020.
The RRF applicant is the entity applying for RRF. A restaurant with multiple locations under the same EIN must apply for all locations in one single application. Applicants may not apply on behalf of other entities such as affiliates or subsidiaries.
The example provided by the SBA is as follows:
ABC Company owns three restaurants that each have their own EIN and each file their own Federal income tax returns. Each of ABC’s restaurants must file their own separate Restaurant Revitalization funding application unless they received Paycheck Protection Program (PPP) loans under ABC Company.
Based on SBA guidance, there does appear to be a franchise exception. In other words, an eligible franchise, even if owned under the same business entity with the same EIN, will be allowed to apply for the RRF provided the franchise is listed on the SBA Franchise Directory with a franchise identifier code to ensure the franchise is eligible under SBA’s other eligibility criteria.
2. What is the amount of grant that an eligible entity can receive?
For purposes of determining the grant amount, an eligible application will subtract their 2020 gross receipts (as reported to to be reported on the entities 2020 federal tax return) from the 2019 gross receipts (reported on the 2019 federal tax return). When analyzing the 2020 gross receipts, amounts received from any Paycheck Protection Program (PPP) loan (First Draw PPP Loan or Second Draw PPP Loan), SBA Section 1112 payments, or from any SBA Economic Injury Disaster Loan (EIDL) loan, EIDL Advance, or Targeted EIDL Advance do not need to be included.
Before finalizing the grant amount, the aggregate original disbursement amount(s) of any PPP loan (First Draw PPP Loan and Second Draw PPP Loan) received, regardless of whether received in 2020 or 2021 must be subtracted. Essentially, the SBA is willing to fund the 2020 versus 2019 gross receipts short fall but is acknowledging that the PPP stimulus funding should offset the amount of the shortfall first. If upon applying for RRF, an applicant’s PPP application is pending it should be withdrawn. Depending on the facts and circumstances, the fact the PPP application has to be withdrawn might not be a bad answer. See below regarding the timing of RRF funds, as well as the widen list of qualified expenses in point 3. More funding under RRF, as opposed to a Second Draw PPP loan, could work to the restaurant owner’s benefit.
It is important to note that any Employee Retention Credit received in 2020 or 2021 will not offset the amount of the RRF grant. This only reaffirms the importance for restaurants to explore the Employee Retention Credit. To learn more, view my article regarding Six Myths Surrounding the 2021 Employee Retention Tax Credit here: https://www.forbes.com/sites/lynnmucenskikeck/2021/02/12/six-myths-surrounding-the-2021-employee-retention-tax-credit/?sh=6ac08fc8397b
The SBA may provide RRF up to $5 million per location, not to exceed $10 million total for the applicant and any affiliated businesses. The minimum award is $1,000.
There are special calculation instructions for the entities who were not fully operations in 2019, including:
· Applicants that began operations partially through 2019
· Applicants that began operations on or between January 1, 2020 and March 10, 2021
· Applicants that have not yet opened but as of March 11, 2021, have incurred eligible expenses
3. How can I use the funds and how long do I have to utilize the funding?
One major benefit regarding the RRF is the time in which the funds can be spent is MUCH longer than the PPP covered periods. The period of monitoring expenses starts on February 15, 2020 and ends on March 11, 2023. Yes, you read that correctly! Expenses can be monitored throughout the entire 2021 calendar year, 2022 calendar year, and through March of 2023. Therefore, restaurants generally should not expect the RRF qualified expenses to interfere with PPP debt forgiveness.
In addition, the expenses that can be utilized for the RRF program include not only similar expenses utilized for PPP debt forgiveness but also include the following expenses:
· Business maintenance expenses including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment
· Construction of outdoor seating
· Business supplies, including protective equipment and cleaning materials
· Business food and beverage expenses, including raw materials for beer, wine, or spirits;
· Business operating expenses, which is defined as business expenses incurred through normal business operations that are necessary and mandatory for the business (e.g. rent, equipment, supplies, inventory, accounting, training, legal, marketing, insurance, licenses, fees). Business operating expenses do not include expenses that occur outside of a company’s day-to-day activities
Past-due expenses are eligible expenses as well if they were incurred beginning on February 15, 2020 and ending on March 11, 2023.
4. Is there a reporting requirement?
Absolutely. The federal government wants to ensure the RRF are used appropriately. Applicants must report through the application portal how much of their award has been used against each eligible use category no later than December 31, 2021. If the Applicant fully expends their funds prior to December 31, 2021, they will be asked to certify in the application portal that proceeds have been used on eligible expenses. All Applicants that do not fully expend award funds prior to December 31, 2021 will be required to complete annual reporting submissions until they fully expend the award funding. This again highlights the fact that eligible applicants will have until March 11, 2023 to spend RRF qualified expenses, however a reporting requirement of how expense are utilized will be required at every calendar year end.
5. How do I apply?
The SBA has provided three different methods on how to apply for the RRF. If an eligible entity uses a POS Restaurant, they can apply through that company. The SBA developed partnerships with multiple recognized technology companies that provide software, hardware & payments services to the restaurant industry to help ensure wide and equitable distribution of relief. These partners are referred to as SBA’s Restaurant Partners or SBA’s Point-of-Sale (POS) Restaurant Partners.
Otherwise, eligible entities can apply via restaurants.sba.gov or apply via the telephone.
SBA: How to Apply for RRF
SBA: How to Apply for RRF
It is important to note that while there is priority funding for the first 21 days to designated groups the SBA is encouraging all eligible applicants to apply as of Monday, May 3rd. During this period, the SBA will distribute funds only for approved applications where the Applicant has self-certified that it meets the eligibility requirements for a small business concern at least 51 percent owned and controlled by women, veterans, or socially and economically disadvantaged individuals. Starting on day 22, the SBA will accept applications from all eligible applicants and distribute funds in the order in which applications are approved by SBA. Don’t wait to apply. The SBA reasoning of first in first out, could impact an eligible entities access to the $28,600,000,000 appropriated for RRF.
If you are like me, you are trying to help our restaurant industry as much as possible in getting through the pandemic and are picturing yourself this summer drinking a glass of wine on your favorite restaurant patio. By working with the food and beverage industry in ensuring their access to RRF, the ability for that dream to come true is much more probable.
To view learn more about the RRF program, click on the following: RRF Program Guide (As of 4/26/2021) and RRF Sample Application (As of 4.19.21)