May 4, 2021
Thomas E. Rutledge
Member, Stoll Keenon Ogden PLLC
Kaitlyn J. George
Member, Stoll Keenon Ogden PLLC
The American Rescue Plan Act passed earlier this year created the Restaurant Revitalization Fund (the “RRF”), providing for some $28.6 billion in grants for restaurants and bars that have suffered during the COVID–19 pandemic. Yesterday (May 3), the Small Business Administration (“SBA”), which has oversight of the RRF, opened its website, and RRF applications may now be submitted.
On May 3, the Small Business Administration, who has oversight of the Restaurant Revitalization Fund (“RRF”), opened its website, and RRF applications may now be submitted.
The breadth of the program is significant, including any “restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premises of a beverage alcohol producer where the public may taste, sample, or purchase products.” Bars and restaurants that are part of a publicly-traded company or owned by a state or local government are excluded. Also, owners with more than 20 restaurants locations are ineligible. However, franchise owners who do not control more than 20 locations, are eligible to apply. Subject to additional limitations, snack and nonalcoholic beverage bars, and bakeries are eligible for participation. There are additional eligibility requirements for brewpubs, breweries, microbreweries, wineries, distilleries and inns.
Applying for an RRF Grant
Similar to the Paycheck Protection Program (“PPP”), companies will need to submit a variety of information to determine their eligibility for an RRF grant and the amount that may be received. In a departure from PPP, many point-of-sale (“POS”) providers including Clover, NCR Corporation, Square and Toast are cooperating in the submission of the applications. By using a POS provider, required historic information as to sales is easily collected and submitted. It is not necessary, however, that the application be made through a POS provider; applications can also be submitted directly through the SBA. Generally speaking, in addition to the completed application, applicants will need to submit:
- Business tax returns (IRS Form 1120 or IRS 1120-S)
- IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F
- For a partnership: partnership’s IRS Form 1065 (including K-1s)
- Bank statements
- Externally or internally prepared financial statements such as income statements or profit and loss statements
- Point-of-sale report(s), including IRS Form 1099-K
Particular rules are set forth in the Restaurant Revitalization Fund Program Guide published by the SBA; Here is a link to that document. Restaurant Revitalization Funding Program Guide (sba.gov).
For the first 21 days after May 3, the SBA will “prioritize reviewing applications from small businesses owned by women, veterans, and socially and economically disadvantaged individuals.” After that 21-day period, all applications will be reviewed on a first-come, first-served basis. The SBA has a regulation (§ 124.103) defining who will constitute a member of a “socially disadvantaged” group. Likewise, there is a regulation (§ 124.104) addressing who is economically disadvantaged. Whether “socially disadvantaged” and “economically disadvantaged” do or do not mean the same thing is an open question.
Funding Limits for an RRF Grant
While there are special rules for companies that started operation in 2020, the general rule for companies in operation in 2019 and prior periods is that RRF grants are equal to 2019 gross revenue less 2020 gross revenue less any PPP loans received by the applicant. There is a functional cap of $5 million that can go to any single location.
Permitted Uses of RRF Funds
Like the PPP, RRF funds may be used only for certain purposes, namely:
- Business payroll costs (including sick leave)
- Payments on any business mortgage obligation
- Business rent payments (note: this does not include prepayment of rent)
- Business debt service (both principal and interest; note: this does not include any prepayment of principal or interest)
- Business utility payments
- Business maintenance expenses
- Construction of outdoor seating
- Business supplies (including protective equipment and cleaning materials)
- Business food and beverage expenses (including raw materials)
- Covered supplier costs
- Business operating expenses
RRF is a Grant, and Not a Loan, Program
While the PPP was a forgivable loan program, the RRF is a grant. Assuming that the funds received are applied to permitted purposes before March 11, 2023, there is no repayment obligation. This treatment is advantageous as compared to PPP as there is no ambiguity as to financial and tax accounting treatment. Further, assuming the terms of the program are satisfied, RRF funds are not taxable income to the recipient.
Further detail as to permitted use of the RRF funds is set forth on page 10 of the RRF Program Guide mentioned above. These permitted purposes are far broader then were allowed under the PPP. All RRF funds must be used by March 11, 2023; funds not applied to a permitted expense by that date much be returned to the SBA. RRF participants will be required to certify the application of the funds.
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Please also be sure to consult the Stoll Keenon Ogden Coronavirus Resource webpage for additional articles and information related to the latest information on new laws and directives enacted by federal, state, and local governments in response to the Coronavirus pandemic.