The restaurant industry was one of the most devastated by the COVID-19 pandemic, with an unprecedented number of establishments being forced to close permanently. But for those restaurants that have managed to survive up to this point, there is finally a little good news.
The Small Business Administration (SBA) has announced that it will open registration for the Restaurant Revitalization Fund (RRF) application portal at 9:00 a.m. on Friday, April 30 and will begin accepting applications at noon ET on Monday, May 3.
The following is a brief summary of Restaurant Revitalization Fund details, including eligibility rules, prioritization of applicants, calculation of the grant amount and tax treatment.
What is the RRF?
The RRF was created by the American Rescue Plan Act of 2021 (ARPA), which was signed into law by President Biden in March of 2021. The ARPA provided $28.6 billion funding for a grant program to be administered by the SBA and designed to provide economic relief specifically to food and beverage service-related businesses that have experienced pandemic-related revenue losses.
Who is generally eligible to receive an RRF grant?
While the RRF specifically has the word “restaurant” in its name, the list of businesses that are eligible to receive funds is actually much broader:
- Restaurants, food stands, food trucks and food carts
- Snack and nonalcoholic beverage bars
- Bakeries (requires onsite sales to the public of at least 33% of gross receipts)
- Saloons, taverns, bars and lounges
- Breweries, brew pubs, tasting rooms, taprooms, wineries, distilleries or other licensed facility of an alcohol producer where the public may taste and/or purchase products (requires onsite sales to the public of at least 33% of gross receipts)
- Inns (requires onsite sales of food and beverage to the public of at least 33% of gross receipts)
- Other similar places of business where the public can assemble for the primary purpose of being served food or drink
Businesses on the above list that are located in an airport or that are owned by an Indian Tribe are specifically identified as being eligible for grants. Franchisees are also eligible.
However, certain taxpayers are specifically not eligible, including a taxpayer that owns or operates more than 20 locations, is publicly traded, has received a Shuttered Venues Operations Grant or has an application pending, has permanently closed, or has filed for bankruptcy without an approved reorganization plan (not an all-inclusive list).
Prioritization of applicants
To ensure the equitable distribution of grants, the SBA will prioritize the processing and funding of applications as follows:
- Days 1 through 21: businesses that are at least 51% owned by women, veterans, or socially and economically disadvantaged individuals
- Days 22 through funds exhaustion: all applicants
In addition to the above processing priorities, the following set asides of the total $28.5 billion fund have been made based upon total 2019 gross receipts:
- $500 million for applicants with gross receipts of $50,000 or less
- $5 billion for applicants with gross receipts of $500,000 or less
- $4 billion for applicants with gross receipts between $500,001 and $1.5 million
Calculation of the grant amount
The calculation of an applicant’s grant amount is as follows:
- If in operation prior to 2019, the amount is equal to 2019 gross receipts minus 2020 gross receipts, minus Paycheck Protection Program (PPP) loan amounts
- If operations begin in 2019, the amount is equal to average 2019 monthly gross receipts multiplied by 12, minus 2020 gross receipts, minus PPP loan amounts
- If operations began after 2019 and before March 10, 2021, or have not yet begun but eligible expenses have been incurred, the amount is the equal to the amount spent on eligible expenses between February 15, 2020, and March 11, 2021, minus 2020 gross receipts, minus PPP loan amounts
The amounts calculated under these rules are capped at a maximum grant of $5 million per physical location and $10 million total per applicant (including amounts received by affiliated businesses). An affiliated business for RRF purposes is defined as a business that is itself an eligible entity and that has an equity or right to profit distributions of at least 50% in the applicant business or the contractual authority to control the direction of the applicant business as of March 13, 2020. The minimum grant is $1,000.
Tax treatment of grants
Similar to PPP loans, the receipt of grants is tax-free for federal income tax purposes while qualifying expenses paid with the funds are still deductible for federal income tax purposes. Qualifying expenses for RRF purposes are broader than for PPP purposes, and include payroll costs, payments of mortgage principal and interest, rent payments, utilities, maintenance expenses (including construction related to outdoor seating and walls, floors, deck surfaces, furniture, fixtures and equipment), supplies (including PPE and cleaning materials), food and beverage expenses, covered supplier costs, operational expenses, and paid sick leave.
Ready to submit your Restaurant Revitalization Fund grant application?
It’s expected that the $28.6 billion funding of the RRF will be depleted quickly, so eligible taxpayers will want to gather their documentation and apply as quickly as possible. If you have questions, would like additional information or would like assistance with your RRF application, please contact us. We are here to help.
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