4/13/2021: This article has been updated since originally published to reflect new guidance.
On March 11, 2021, President Biden signed the American Rescue Plan Act (the Act) into law to speed up the U.S. recovery from the economic and health impacts of the COVID-19 pandemic. Included in the Act is a Restaurant Revitalization Fund with appropriations of $28.6 billion in grants to support the restaurant industry. This is the first grant program specifically available to the restaurant industry.
Eligible businesses with gross receipts during 2019 of not more than $500,000 will have $5 billion available to them, with the remaining $23.6 billion to be awarded in an equitable manner to eligible restaurant entities based on annual gross receipts. These grants will be administered by the Small Business Administration (SBA) and will be available until expended.
Who is Eligible for the Grant?
An eligible entity under the Act includes the following:
- Food stand, food truck, food cart;
- Saloon, inn, tavern, bar, lounge, brewpub;
- Tasting room, taproom;
- Licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase product; or
- A similar establishment where the public assemble for the primary purpose of being served food or drink.
Who is Not Eligible?
- Entities as of March 13, 2020 who own or operate (together with affiliated businesses) more than 20 locations, regardless of whether those locations do business under the same or multiple names; or
- 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; or
- Publicly traded entities; or
- Entities that are state or local government-owned or operated businesses; or
- Entities that have permanently closed; or
- Entities that have filed for bankruptcy under Chapter 7 or are liquidating under Chapter 11; or
- An entity that has filed for bankruptcy under Chapter 11, 12, or 13 but does not have an approved plan for reorganization.
An 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%, or in which an eligible entity has the contractual authority to control the direction of the business.
Eligibility may be limited for the following entities:
- Eligibility may be limited to entities that have onsite sales of food and beverage to the public of at least 33% of gross receipts.
- When applying, entities may need to share evidence of onsite sales.
Brewery, Brewpub, Microbrewery, Taproom, Tasting Room, Bakery, Winery, and Distillery:
- Eligibility may be limited to entities that have onsite sales to the public of at least 33% of gross receipts.
- When applying, entities may need to share filed Tax and Trade Bureau reports for the gross receipts reporting period.
How Much is My Business Eligible to Receive Under this Act?
The dollar amount available under this Act is based on the calculation of pandemic-related revenue losses for an eligible entity. Pandemic-related revenue loss is calculated in the following manner:
|Business was in operation:||Formula for amount eligible:
|All of 2019||(2019 gross receipts) – (2020 gross receipts + Paycheck Protection Program (PPP) loan proceeds)
|A portion of 2019||(2019 gross receipts / months open in 2019 x 12) – (2020 gross receipts + PPP loan proceeds)
|Opened during the period January 1, 2020 and ending March 12, 2021||Total of eligible payroll costs incurred by the entity minus gross receipts received
|Business has not yet opened as of application date||The amount of eligible payroll costs incurred
In all situations, the pandemic-related revenue loss is reduced by any amounts received and spent under the PPP in 2020 or 2021.
The definition of payroll costs is consistent to the definition under the PPP, but it does not include qualified wages taken into account in determining the Employee Retention Credit (ERC).
Is There a Maximum Dollar Amount My Business Can Receive?
The aggregate amount of grants made to an eligible entity and any affiliated business shall not exceed $10 million and shall be limited to $5 million per physical location of the eligible entity.
How Should the Funds Be Used in My Business?
During the covered period, defined as beginning February 15, 2020 and ending December 31, 2021, the funds should be used for the following expenses incurred as a direct result of, or during, the COVID-19 pandemic:
- Payroll costs
- Mortgage principal and interest payments (not including prepayments)
- Rent payments (not including prepayments)
- Maintenance expenses to include construction to accommodate outdoor seating, walls, floors, deck surfaces, furniture, fixtures, and equipment
- Supplies, including protective equipment and cleaning materials
- Food and beverage expenses within the normal business practice before the covered period
- Covered supplier costs
- Operational expenses
- Paid sick leave
Funds must be returned if an eligible entity fails to use all the grant funds for the allowable purposes on or before the last day of the covered period or if it permanently ceases operations on or before the last day of the covered period (December 31, 2021). The SBA has the option to extend the covered period no later than two years after enactment.
When and How Can I Apply?
Eligible entities will apply for the grants through the SBA website. However, applications are not currently available as the SBA needs time to develop the application and guidance for restaurant and bar owners. Priority will be given to eligible entities that are small business organizations owned and controlled by women, veterans, or socially and disadvantaged small business organizations. These qualifying entities may apply during the initial 21-day period.
A good faith certification will be required of applicants certifying that:
- Uncertainty of current economic conditions makes the grant necessary to support ongoing operations,
- The entity has not applied for or received a Shuttered Venue Operators Grant (SVOG) under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (generally for performing arts, live venues, theaters, etc.) Read more about the SVOG here.
How Do I Prepare?
As you patiently wait for the SBA to develop the application and guidance, we recommend that you prepare to apply.
To apply and receive the grant payments, you will need to complete an application form and the IRS Form 4506-T (Request for Transcript of Tax Return), as well as provide gross receipts documentation.
Documentation to show gross receipts and, if applicable, eligible expenses, include:
- Business tax returns (IRS Form 1120 or IRS 1120-S)
- IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F
- For a partnership; partnership’s IRS Form 1065 (including K-1s)
- Bank statements
- Externally or internally prepared financial statements such as income statements or profit and loss statements
- Point of sale reports, including IRS Form 1099-K
Will These Grants be Taxable?
The grants are not taxable income for federal income tax purposes, but the business will be able to deduct the expenses paid with the grant funds from their gross income.
The Restaurant Revitalization Fund is a great opportunity for restaurants and bars who have been hit hard during the COVID pandemic. Having these funds available to restaurant and bar owners as the State moves into phase three is important for their future success. If you have questions about the program, please contact a Clark Nuber advisor.
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