Finally, there is a light at the end of the tunnel for restaurant owners who were hit hard by the pandemic. On March 11, 2021, Congress passed The American Rescue Plan Act of 2021 which includes a $28.6 billion Restaurant Revitalization Fund ("RRF") to be administered directly by the U.S Small Business Administration ("SBA'). The RRF will offer nontaxable grants to eligible restaurants, or restaurant related industries, providing relief to those food and beverage businesses that were greatly impacted by the 2020 COVID-19 pandemic. An eligible restaurant may receive a grant equal to the amount of its COVID-related revenue loss. Unlike the Paycheck Protection Program ("PPP") loan, the RRF is a grant, which means you do not need to pay it back.

So far the SBA has yet to issue additional rules regarding the application procedure for such grants, but we expect to be provided with further guidance soon. Meanwhile, we hope to be a resource for any businesses looking to apply, starting with a brief summary of the main provisions relating to the RRF below.

Who is Eligible for the RRF Grants?

An eligible entity includes a restaurant, food stand, food truck, food cart, caterer, saloon, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed facilities or premises of beverage alcohol producers where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drinks. This definition includes any entity described above that is located in an airport terminal.

WARNING: An entity is not eligible if (1) they own and operate more than twenty restaurants, and (2) they are a publicly traded company. However, if you own a franchise of a publicly traded company, your business is eligible.

How Much Can You Get?

As mentioned, the amount of the grant is based on an eligible entity's pandemic-related revenue loss. The revenue loss is calculated by subtracting 2020 gross receipts from 2019 gross receipts. If a business was not in operation for the entirety of 2019, then the total revenue loss is the difference between 12 times the average monthly gross receipts for 2019 and 12 times the average monthly gross receipts in 2020. The SBA may also issue a separate formula to determine this amount in the future. Take note that if a business was NOT in operation until 2020, they can still receive a grant equal to the amount of "eligible expenses" subtracted from gross receipts received.

The goal of RRF is to help restaurant owners maintain their operations, and so eligible expenses include 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, covered supplier costs, operational expenses, paid sick leave, and any other expenses that the SBA deems essential to maintain operations.

Finally, the pandemic-related revenue losses will be reduced by any amount of funding received from the PPP First Draw and Second Draw loans in 2020 and/or 2021.

Notably, there is priority in awarding grants. Congress instructs the SBA to prioritize grants to eligible entities that are small businesses owned and controlled by women, veterans or socially and economically disadvantaged owners.

The covered period of the grant is beginning on February 15, 2020 and ending on December 31st, 2021, or a date to be determined by the SBA.

Next Steps?

The SBA has not announced when it will start taking RRF applications. Although RRF grants are not yet open, we know demand will be extremely high and businesses should start preparing now. A good place to begin is to (1) commence compiling receipts and financial statements to show 2019 and 2020 revenues, (2) properly register your business with the SBA in order to later seamlessly apply for an RRF grant.

Please don't hesitate to contact your Pryor Cashman attorney with any further questions or concerns.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.