May 5, 2021

Article originally published April 14, 2021
Last updated May 5, 2021

Update: On Friday, April 30th, the National Restaurant Association updated its frequently asked questions resource and provided an application how-to guide related to the Restaurant Revitalization Fund. By now, most restauranteurs have applied for the grant but for those who have not, these resources may be valuable.

Update: On Tuesday, April 27th, the Small Business Administration (SBA) informed potential applicants that registration will begin on Friday, April 30th at 9 a.m. EDT and applications will open on Monday, May 3rd, at noon EDT.  It is recommended all applicants apply on day one, May 3rd.

The SBA is recommending applicants perform the following in order to be prepared:

If you have any questions, please contact Dustin Minton.

Update: On Saturday, April 17th, the Small Business Administration (SBA) released its sample application, program guide, and cross-program eligibility chart as it relates to the Restaurant Revitalization Fund (RRF).  The official application launch date is still forthcoming but expected to be soon.  The first 21 days are reserved for small businesses owned by women, veterans, and socially and economically disadvantaged individuals.  Following the 21 day period, all eligible participants are encouraged to submit applications.  To stay up to date, you can subscribe for RRF email updates by clicking here.

Some additional noteworthy items from the program guide:

  • The covered period of the RRF has been extended to March 11, 2023, from December 31, 2021.
  • Use of funds validation is required to be reported through the application portal each year until such funds have been used, no later than March 11, 2023.
  • There are three ways to apply for the RRF:
    • Through a recognized SBA Restaurant Partner
    • Through SBA directly at sba.gov
    • Telephonically at (844) 279-8898
  • Applications are prepared at the EIN level.
  • Additional set-asides were noted in addition to the $5 billion for applicants with $500,000 or less in 2019 gross receipts
    • $4 billion for applicants with 2019 gross receipts from $500,001 to $1,500,000
    • $500 million for applicants with 2019 gross receipts of not more than $50,000
  • After the 21-day period for select groups, the SBA will accept applications from all eligible applicants and distribute funds in the order in which applications are approved by SBA.

Now is the time to get your documentation gathered and fill out the application in anticipation of the application process opening.

On March 11, 2021, the American Rescue Plan Act of 2021 created the $28.6 billion Restaurant Revitalization Fund to provide grants for restaurants sustaining financial losses due to the COVID-19 pandemic. In response to several questions regarding eligibility, calculations, and more, the National Restaurant Association (NRA) recently released a resource, FAQs on the Restaurant Revitalization Fund Grant (RRFG), to provide responses to several questions and highlight those that have yet to be answered.  We’re pleased to summarize key points of the newly released information based on the release of the draft RRFG application form.

Eligibility

A general definition had been used in Restaurant Revitalization Fund to include most businesses serving food and drinks.  The FAQ has clarified that inns, bakeries, wineries, breweries, and distilleries may also be eligible so long as 33% of gross receipts pertain to onsite sales of food and beverage to the public.  These businesses will need to share evidence of on-site sales.

Disqualification

It was noted that a permanently closed business is not eligible, as well as entities that have filed for bankruptcy under Chapter 7 or liquidating under Chapter 11.  It also indicates entities filing for bankruptcy under Chapter 11, 12, or 13 with no approved plan of reorganization are not eligible for the grant.

Date of establishment

There is no requirement for an entity to have been open before a particular date.  Even if your restaurant has not yet opened at the date of application, it would be eligible to receive a grant equal to the eligible expenses incurred in preparing to open.  The grant formula for other dates of formation can be found in this article shared recently.

Franchise concepts

At one point prior to this legislation becoming law, franchise concepts were to be excluded; however, in the final legislation, there was no distinction made in regards to franchise versus independent concepts.  So long as a franchise concept meets the other eligibility requirements such as no more than 20 locations owned by the franchisee, the franchise business would be eligible.

The NRA is seeking clarity on the issue of whether the franchise concept must be listed on the SBA Franchise List in order to be eligible.  The NRA opposes this potential requirement.

The FAQ also clarified that franchisees of a publicly-traded franchisor would be eligible as the franchisor is not an affiliated business.

Application documents

The FAQ provides a listing of documents that may be needed when applying for the RRFG pertaining to gross receipts and eligible expenses documentation.

Application process

The Small Business Administration (SBA) clarified that restaurants do not need to receive a DUNS number or register at www.SAM.gov in order to apply for an RRFG.

The RRFG will be administered by the SBA and no banks will be involved.  It is anticipated the SBA will deposit the funds directly to the bank identified on the application.

Application priority

It was noted that the first 21 days of the application process will be limited to woman-owned, veteran-owned, or socially and economically disadvantaged small businesses.  The definition of these groups is included in the FAQ.  Additional access may be defined in segments according to an entity’s annual gross receipts in 2019.

Gross receipts

The FAQ includes a definition of gross receipts to be used which is consistent with the definition used by the Paycheck Protection Program (PPP) for second draws.  Funds received from the multiple government programs like PPP, ERC, and EIDL, are likely not included in the definition of gross receipts.

Eligible expenses

Eligible expenses cannot include eligible wages used for the employee retention credit.  Effectively, no double dipping, but remember that the covered period is February 15, 2020, through December 31, 2021, and includes many types of eligible expenses.

The SBA may extend the covered period an additional 14 months, until March 11, 2023, and has the authority to extend it up to two years after enactment of the RRFG program.

The NRA is seeking clarification as to whether alcohol is included in eligible expenses.

The NRA is seeking clarification as to whether debt service is included in eligible expenses as it is noted that many owners may have used personal credit cards or business lines of credit for such expenses.

Public disclosure

At this time, it is not known whether RRFG applications will be made public.

Taxability

For federal tax purposes, the RRFG is not taxable income nor shall any deduction be denied for such eligible expenses.  Effectively, there are no federal tax consequences with the RRFG.  It is important to know your state’s tax conformity as not all states will follow federal tax rules and this RRFG could become taxable on your state income tax return.

The one big question everyone has is when this program will go live.  Based on interviews with SBA personnel, the goal is to start taking applications by the end of April at which time the first 21 days are reserved for select groups as discussed earlier.  The reason for the delay is because the technology platform to be used for applications is being started from scratch and needs to be able to accommodate a large volume of applications in an efficient way.  Once it is up and running, you will be able to access information on the program here.

For additional information, be sure to check out the NRA website and follow your state’s restaurant association.  In the meantime, please make sure you have your documentation ready for when it is your turn to apply for the RRFG.

Stay tuned as we keep abreast of the latest developments of the RRFG. If you have any questions, please contact Dustin Minton.

 

Article written by:
Dustin Minton, CPA, MBA
Director, Assurance & Business Advisory Services

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Tags: Audit/GAAP, Coronavirus COVID-19