With the Small Business Administration's (SBA) announcement late last week in a Senate hearing that it plans on rolling out the Restaurant Revitalization Grant (RRG) Program, under the American Rescue Plan Act of 2021 (Act), as soon as early April, potential applicants should begin preparing for the application process.
I. Recap of the RRG Program
As we discussed in our previous article, this $28.6 billion RRG program will provide much-needed economic relief to restaurateurs who have been heavily impacted by government shutdown orders, social distancing requirements, and limitations on operations and hours due to the COVID-19 pandemic. To recap: "eligible entities" may seek a grant for their "pandemic-related revenue loss," up to a total of $10 million (including a cap of $5 million per physical location for entities with more than one location). The grant amount is equal to the applicant's 2019 gross receipts less (a) the applicant's 2020 gross receipts and (b) the amounts, if any, received under both first and second draw Paycheck Protection Program (PPP) loans.
For example, assume a restaurant's 2019 gross receipts were $12 million. The 2020 gross receipts were $3 million, and the two PPP loans were for $2 million and $2.5 million. The applicant would be eligible for a grant of $4.5 million (12 - 3 - 2 - 2.5 = 4.5).
Most restaurants, food trucks, brewpubs, caterers, and bars will qualify as "eligible entities" so long as they (and their affiliates) don't have more than 20 locations, are not publicly traded, and haven't received a Shuttered Venue Operators Grant.
Also of note, unlike the PPP Loan Program, RRG grants do not currently contain any restrictions on how the funds must be spent—meaning there is no 60% payroll requirement. This is a huge benefit to many restaurants which struggled to pay rent and other costs under the PPP loan due to the payroll spend requirement. SBA may change this once rulemaking begins, as they did with PPP, but since the aims of the programs are different, one would hope they do not.
II. Allocation of Funds
There has been some confusion on how the money from the program will be allocated.
First, in accordance with the Act, there is $5 billion set aside for small applicants (those with revenues in 2019 of less than $500,000) for 60 days from the date the law was signed (which takes us to May 10, 2021), or until a later time the SBA sets in its rulemaking. We anticipate that the SBA will also impose a 60-day limitation on this pool of funds from the date it opens up applications. In other words, if the SBA opens applications on April 15, 2021, we anticipate that these funds will be set aside until June 14, 2021. If there is any money from this $5 billion pool left after May 10, 2021 (or the later date set by the SBA), it will get added to the general pool for use by other applicants.
Second, under the Act, the remaining $23.6 billion will be available to all applicants immediately once the program opens. Any applicant above $500,000 in 2019 revenue will be competing in this pool.
Furthermore, the Act provided for a "preference period" for woman-owned, veteran-owned, and disadvantaged small businesses for the first 21 days the application pool is open. It is currently unknown if this will exclude any other applicants from receiving funds during this 21-day period, but the legislation does not seem to indicate that it will.
III. Preparing for the Application
There were concerns among industry contacts that applying for a grant would require registration in SAM.gov, which is a time consuming process. However, on March 30, 2021, the SBA tweeted it would be waiving that normal process. This is great news, as it will save hours of time for restaurateurs already in need of a break.
Prior to the application being launched, you can start gathering the documents which prove your revenue differential (i.e., tax returns, financial statements, etc.), as well as any loan documentation on PPP loans you have received. Additionally, you will likely need corporate organizational documents (articles of organization/incorporation, operating agreements, etc.) to prove when you began business. Having these documents on hand may make an application easier.
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