The Restaurant Revitalization Funding (FRR) program, established in accordance with the American Rescue Plan Act enacted on March 11, 2021, offers eligible businesses the opportunity to recoup some of their lost revenue from the pandemic. Recently, the Small Business Administration (SBA) released a Program guide for the RRF program and indicated that – as of April 30, 2021 at 9 a.m. EDT – businesses can pre-register for the program. Then, applications can be submitted as of May 3, 2021 at 12:00 p.m. EDT. This alert addresses some of the key provisions of the RRF program. Further information is available on the SBA website.
RRF funds are reserved for the following businesses: (1) restaurants, food stands, food trucks, food carts, caterers, saloons, taverns, bars and lounges; (2) bakeries, breweries, tasting rooms, bars, breweries, microbreweries, wineries, distilleries and inns, if at least 33% of their gross revenues are from on-site sales to the public; (3) facilities or licensed premises of a producer of alcoholic beverages where the public may taste, taste or purchase products; (4) snack and non-alcoholic drink bars; and (5) other similar places of business where the public or customers gather for the primary purpose of being served food or drink (the 33% gross revenue test applies).
The program is not available to: (a) franchisees of a franchisor that is not listed in the SBA franchise directory with a franchise identification code; (b) enterprises managed by the State or by local authorities; (c) entities which, as of March 13, 2020, owned or operated (with any affiliated company) more than 20 sites (whether those sites operate under the same name or under more than one name or belong to different industries); (d) entities that have a pending application for, or have received, a grant for closed site operators; (e) publicly traded companies (defined as an entity majority owned or controlled by an entity which is an issuer, the securities of which are listed on a national stock exchange under section 6 of the Securities Exchange Act of 1934 ); (f) entities which are permanently closed; (g) entities that have filed for bankruptcy, unless the entity is operating under a reorganization plan approved under Chapter 11, Chapter 12 or Chapter 13 of the Bankruptcy Code; (h) non-profit organizations; or (i) businesses charging less than $ 1,000. Franchisors who are not already listed in the SBA franchise directory must submit their franchise documents to the SBA for review in order for their franchisees to become eligible for the RRF program. Businesses that are temporarily closed or actively working on opening with expenses incurred as of March 11, 2021, may be eligible.
The formula for determining the amount of the grant depends on the date of operation of the applicant. The “operating” date is the day the entity started selling. Typically, the grant amount is equivalent to the applicant’s “pandemic revenue loss” of up to $ 5 million per location (not to exceed $ 10 million in total for the applicant and affiliated companies). The amount of the subsidy is generally calculated as follows, depending on the date of operation:
- For businesses that were in operation (making sales) before or on January 1, 2019, the amount of the subsidy is equal to [Gross receipts for 2019] less [Gross receipts for 2020] less [Amount of all Paycheck Protection Program (PPP) loan funds received];
- For companies that started their activities (making sales) partially until 2019, they can choose to calculate their subsidy amount as follows:
- [Average monthly gross receipts for 2019 multiplied by 12] less [Gross receipts for 2020] less [Amount of all PPP loan funds received]; Where
- [Eligible expenses incurred between February 15, 2020 and March 11, 2021] less [Gross receipts for 2020] less [Amount of all PPP loan funds received].
- For companies that started their activities (making sales) on or between January 1, 2020 and March 10, 2021; and for businesses that have not yet opened but – as of March 11, 2021 – have incurred eligible expenses, the amount of the grant is equal to: [Eligible expenses incurred on or between February 15, 2020 and March 11, 2021] less [Gross receipts for 2020 and 2021] less [Amount of all PPP loan funds received].
“Raw receipts” are typically those reported on federal income tax returns or point-of-sale reports (including IRS Form 1099-K) for the business. The RRF Program Guide provides a more detailed definition of “gross revenue” and other key terms. The types of “qualifying expenses” for businesses that started operating (making sales) in 2020 or 2021 are the same as the qualifying uses of funds described in the next section below.
The minimum amount of funding is $ 1,000; therefore, applicants requesting less than $ 1,000 in funding will not be accepted or approved.
Use of funds
Grant funds can be used for the following expenses that were / are incurred between February 15, 2020 and March 11, 2023:
- Salary costs (including sick leave and costs related to the continuation of group health care, life insurance, disability, dental insurance premiums);
- Payments of principal and interest on any commercial mortgage bond (excluding any prepayment of principal on a mortgage bond);
- Commercial rent payments, including rent under a rental agreement (which will not include any prepayment of rent);
- Commercial debt service (both principal and interest, but does not include any prepayment of principal or interest);
- Commercial utilities for the distribution of electricity, gas, water, telephone or Internet access, or any other utility used in the ordinary course of business for which the service began before March 11, 2021;
- Company maintenance expenses, including on walls, floors, deck surfaces, furniture, fixtures and equipment;
- Construction of outdoor seating;
- Business supplies, including protective equipment and cleaning products;
- Corporate food and beverage expenses, including raw materials for beer, wine or spirits;
- Supplier Covered Costs, which is an expenditure made by the Eligible Entity to a Supplier of Goods for the supply of Goods that are:
- Essential to the operations of the entity at the time the expenditure is made; and
- Is made pursuant to a contract, order or purchase order in effect at any time prior to receipt of restaurant revitalization funds; Where
- With respect to perishable goods, a contract, order or purchase order in force before or at any time during the period covered; and
- Business operating expenses (defined as business expenses incurred in the course of normal business operations that are necessary and mandatory for the business – i.e., rent, equipment, supplies , inventory, accounting, training, legal services, marketing, insurance, licenses, fees).
If the business permanently closes after receiving funds, the period covered will end when the business is permanently closed or March 11, 2023, whichever occurs first. All unspent funds for eligible expenses at the end of the period covered must be returned to the government.
Reservations and priority period
A total of $ 28.6 billion has been allocated to the RRF program. $ 5 billion has been set aside for applicants whose 2019 gross receipts do not exceed $ 500,000. Another $ 4 billion has been set aside for applicants with 2019 gross receipts between $ 500,001 and $ 1,500,000. Finally, an additional $ 500 million has been set aside for applicants whose 2019 gross receipts do not exceed $ 50,000.
During the initial three-week period that the RRF program is open (which is expected to start on May 3, 2021), applications from all eligible applicants will be accepted, but the SBA will only process and fund applications from priority groups. (discussed below). Thereafter, the SBA will continue to accept applications from all eligible applicants and will distribute the funds in the order in which they are approved by the SBA. Priority group applications are those for which the applicant has self-certified that it is a small business owned and controlled at least 51% by one or more persons who are women, veterans or individuals socially and economically disadvantaged. Socially disadvantaged individuals are those who have been subjected to racial or ethnic or cultural prejudices because of their identity as a member of a group without regard to their individual qualities. Economically disadvantaged people are the socially disadvantaged people whose ability to compete in the free enterprise system has been reduced due to diminished capital and credit opportunities compared to others in the same industry who are not socially disadvantaged. Additional definitions for these priority group applicants can be found in the RRF Program Guide and Sample Application (discussed below).
The SBA just announced that applications can be submitted as of May 3, 2021 at 12:00 p.m. EDT. There are three ways to apply for RRF grants. The first is through a recognized SBA restaurant point of sale partner (listed on the SBA website). The second is done directly through the SBA Portal on the SBA website. The third is by phone at (844) 279-8898; however, telephone inquiries will have longer processing times.
As of April 30, 2021 at 9:00 a.m. EDT, companies that plan to apply directly through the SBA website can pre-register for the program. Businesses applying through a point of sale partner are not required to register in advance.
These funds should be used up in a few weeks. Therefore, in preparation for the May 3, 2021 launch, eligible businesses should review the official SBA guidelines (including the sample application, available here) and gather the applicable required documents (including federal income tax returns for 2019 and 2020, bank statements for the past 3 months, point-of-sale reports, eligible expense documents, tax identification numbers and addresses of all owners of 20% or more equity and SBA loan numbers and amounts for all PPP loans).