— By Michael Krueger —
On March 11, 2021, President Biden signed into law The American Rescue Plan Act. The Act has $1.9 trillion in relief funds, including $28.6 billion set aside for the restaurant industry in the Restaurant Revitalization Fund. The Fund lists the qualifications, priorities, method of calculating the amount the restaurant could receive, and the permitted use of funds.
The Fund is only for restaurants. The definition of “restaurants” means a restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, tap room, licensed facility or premise of a beverage alcohol producer 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 drink. The Fund qualifications are based on the entity that owns the restaurant, which could be a sole proprietorship, partnership, limited partnership, limited liability company (LLC) or corporation (entities). The Fund excludes publicly traded entities, entities with 20 or more locations (including through its affiliates), and entities that have a pending application for or have received a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act.
The $28.6 billion Fund is allocated into two funding groups: $5 billion for restaurant entities with annual gross revenue under $500,000 and $23.6 billion for restaurant entities with over $500,000 in annual gross revenue. The Small Business Administration (SBA) will prioritize awarding grants to eligible entities that are small business concerns owned and controlled by:
- women (as defined in section 3(n) of the Small Business Act (15 U.S.C. 632(n)))
- small business concerns owned and controlled by veterans (as defined in section 3(q) of such Act (15 U.S.C. 632(q)))
- or socially and economically disadvantaged small business concerns (as defined in section 8(a)(4)(A) of the Small Business Act (15 U.S.C. 637(a)(4)(A))).
The priority in awarding grants during the first 21 days does not prevent any entity that does not satisfy the three priority categories from applying during the initial 21-day period.
Calculating Grant Amount
Each restaurant entity can apply for and receive up to $10 million in grant funds. The amount a restaurant entity receives is calculated by taking the sum of its gross revenue in 2019, subtracting the gross revenue in 2020, subtracting the total amount of Paycheck Protection Program (PPP) funds and any other funds received under SBA 7(a) 36 and 37. For example, Restaurant A made $5 million gross revenue in 2019, and made $2 million gross revenue in 2020 and received $1 million in PPP funds. Restaurant A would receive a grant award of $2 million.
Permitted Use of Funds
The PPP was a loan that would only be converted to a grant through a forgiveness application process that required the borrower to prove the funds were used for retaining employees or similar expenses. The PPP also had caps on a certain dollar amount per employee. The Fund does not have those same limitations. The acceptable use of funds is broader and includes: payroll costs, rent, utilities, maintenance (including construction for outdoor seating and related redesign), supplies, food and beverage expenses, and operational expenses.
Restaurant owners should consult with their accountants to prepare their 2020 financial reports and compare those numbers with the 2019 financial reports to determine the amount for which they may qualify.
— Michael Krueger is a partner with Newmeyer Dillion, representing clients in the food industry through all phases of restaurant and bar ownership including entity formation, financing and private equity, lease negotiations, liquor licenses, branding and trademarks, labor/employment and franchising.