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Congress Provides Lifeline To Restaurants Impacted by Pandemic

Earlier this afternoon, as part of the American Rescue Plan Act of 2021 (the Act), Congress established a $28.6 billion fund to provide grants to restaurants that have been devastated by the pandemic (the Restaurant Revitalization Fund).

This highly anticipated program provides a much-needed lifeline to one of the industries hardest hit by the pandemic. Unlike the Paycheck Protection Program, which provided businesses with forgivable loans based on an average monthly payroll, the Restaurant Revitalization Fund will provide grants based on an entity’s pandemic-related revenue loss. This favorable structure, however, is likely to create a race for funds between businesses that have been eagerly awaiting support from the Federal government. So entities looking to avail themselves of the program are encouraged to familiarize themselves with the rules quickly and pay close attention to regulatory announcements from the Small Business Administration (SBA).

Here are some key facts about the Restaurant Revitalization Fund:

Program Size: $28.6 Billion

  1. Small Entities: $5 billion is earmarked for entities with 2019 gross receipts of not more than $500,000.
  2. All Other Entities: $23.6 billion is available for grants in an equitable manner to eligible entities of different sizes based on annual gross receipts.

Eligibility

In order to be eligible for a Restaurant Revitalization Fund grant, an applicant must have the following characteristics:

A) Business Type: The applicant must be one of the following:

  1. a restaurant,
  2. a food stand,
  3. a food truck or food cart,
  4. a caterer,
  5. a saloon, inn, tavern, bar, lounge, brewpub, tasting room, or licensed facility or premise of a beverage alcohol producer where the public may taste, sample or purchase products, or
  6. another place of business in which the public or patrons assemble for the primary purpose of being served food or drink.

B) No Government Operation: The applicant must not be a State or local government-operated business.

C) Size: As of March 13, 2020, the applicant (together with any affiliated businesses) must own or operate no more than 20 locations. Note that the term “affiliated business” is defined as “a business in which an eligible entity has an equity or right to profit distributions of not less than 50 percent, or in which an eligible entity has the contractual authority to control the direction of the business, provided that such affiliation shall be determined as of any arrangements or agreements in existence as of March 13, 2020.”

D) Access to Public Markets: The applicant must not be a publicly-traded company.

Grant Size

The Act specifies that grants provided from the Restaurant Revitalization Fund will equal the pandemic-related revenue loss of the eligible entity with a cap of $10 million for each eligible entity (together with affiliated businesses—see above for a discussion on the definition of “affiliated business”) and $5 million per physical location for each eligible entity.

Award Priority

The SBA is required to provide a 21-day priority window for eligible entities that are (a) small business concerns owned and controlled by women or veterans, or (b) socially and economically disadvantaged small business concerns. Except for this priority window, and the $5 billion reserved for entities with 2019 gross receipts of not more than $500,000, the SBA Administrator is required to award grants in the order in which applications are received. Accordingly, restauranteurs are encouraged to coordinate with their advisors to prepare all application materials in advance.

Use of Proceeds

Restaurant Revitalization Fund grants can be used for the following expenditures during the covered period (currently February 15, 2020 – December 31, 2021):

  1. Payroll costs;
  2. Mortgage principal or interest (except for prepayment of principal);
  3. Rent (excluding prepayment of rent);
  4. Utilities;
  5. Maintenance expenses, including construction of outdoor seating and FF&E;
  6. Supplies, including protective equipment and cleaning materials;
  7. Food and beverage expenses;
  8. Covered supplier costs;
  9. Operational expenses;
  10. Paid sick leave; and
  11. Other expenses deemed essential to maintaining the eligible entity.

Now that the Act has been passed by both houses of Congress it will head to President Biden’s desk for approval, which is expected on Friday (March 12, 2021) afternoon. Once approved, restaurants should, together with their advisors, pay close attention to announcements from the SBA regarding application procedures and timelines. As indicated above, for most applicants, grants will be awarded on a “first-come-first-served” basis, so restaurateurs are encouraged to be ready to apply at the earliest possible time.

Contacts

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