American Rescue Plan Act Provides $28.6 Billion in Relief for Restaurant Industry
The hospitality industry has been hit especially hard during the COVID-19 pandemic, but there is assistance in sight for struggling restaurants and bars. On March 11, President Joe Biden signed into law the American Rescue Plan Act of 2021 (Act), a $1.9 trillion stimulus bill that includes $28.6 billion for a Restaurant Revitalization Fund (RRF).
Title V, Section 5003 of the Act authorizes the Small Business Administration (SBA) to make grants of up to $10 million in the aggregate ($5 million in the aggregate per location) to eligible entities and their affiliated businesses to cover pandemic-related losses.
What Businesses Are Eligible for RRF Grants?
"Eligible entities" are broadly defined as businesses where "the public or patrons assemble for the primary purpose of being served food or drink" and include:
- Food stands and food trucks
- Saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms and taprooms
- Licensed facilities or premises of a beverage alcohol producer where the public may taste, sample or purchase products
It would appear that nightclubs, music venues, concert halls and other entertainment venues are not included, even if they serve food or drink, as the primary purpose of people patronizing such businesses is not to be served food or drink. However, such entities may be eligible to receive grants from Section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
Eligible entities also include "affiliated businesses," which are defined as businesses in which the eligible entity has an equity or right to profit distributions of not less than 50 percent or has the contractual right to control the business. (The interest or right to control must have been in existence as of March 13, 2020.)
Which Businesses Are Not Eligible for RRF Grants?
- Publicly traded companies
- Entities (together with any affiliated businesses) that operate more than 20 locations under the same or different names
- Any entity that has a pending application for or has received a grant under Section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-profits, and Venues Act (commonly referred to as a Shuttered Venue Operators Grant)
How Much Assistance Can an Eligible Entity Get?
The amount of any grant is limited to the eligible entity's "pandemic-related revenue loss," which is defined as one of the following:
- 2020 gross receipts subtracted from 2019 gross receipts, if the sum is greater than zero; or
- If the entity was not in business for the entirety of 2019, the difference between the product of its average monthly gross revenues in 2019 multiplied by 12, and the product of its average monthly gross receipts in 2020 multiplied by 12; or
- If the entity opened during the period beginning on January 1, 2020 and ending on the day before the enactment of the Act, the amount of its payroll costs (which has the same meaning as in the CARES Act) less its gross receipts during that period; or
- If the entity has not yet opened as of the date of its grant application, the amount of its payroll costs incurred as of the date of the Act.
In all cases, the amount of an entity's "pandemic-related revenue losses" are reduced by the amount of Paycheck Protection Program (PPP) or PPP Second Draw loans made to the entity in 2020 or 2021.
Grants Are Capped
The aggregate amount of grants made to any eligible entity and its affiliates is capped at $10 million and $5 million per physical location of the entity.
What Can Grants Be Used For?
During the period beginning February 15, 2020 and ending December 31, 2021, the grant funds may only be used for the following expenses incurred "as direct result of, or during, the COVID-19 pandemic" and include the following:
- Payroll costs (as that term is defined in the CARES Act for PPP loans)
- Principal and interest payments on a mortgage (but not a prepayment of principal)
- Maintenance expenses, including construction and furnishing costs for outdoor seating
- Supplies, including PPE and cleaning materials
- Food and beverage expenses that are within the normal scope of business of the eligible entity prior to February 15, 2020
- Covered supplier costs (as that term is defined in the CARES Act for PPP loans)
- Operational expenses
- Paid sick leave
- Anything else determined by the SBA to be essential to maintaining the eligible entity
Return of Funds
Grant funds will have to be returned in the event that:
- The entity's pandemic-related revenue losses are estimated in its grant application and the estimate overstates the losses; or
- The entity goes out of business before using all of the grant funds; or
- The entity fails to use all of the grants funds before December 31, 2021 or a date set by the SBA, which cannot be more than two years after the date the Act is enacted.
Entities seeking grants must self-certify in good faith in their applications that:
- The uncertainty of the current economic conditions makes necessary the grant request to support ongoing operations of the eligible entity;
- The eligible entity has not applied for or received a grant under Section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act; and
- To the extent seeking priority for the application as described above, that the eligible entity is eligible for priority.
Limitations on Grant Awards During the Initial Period After Enactment
During the first 60 days after the Act becomes law, $5 billion of the RRF is reserved for grants to eligible entities with gross receipts in 2019 of not more than $500,000. The remaining $23.6 billion is available during such period for "the Administrator to award grants ... in an equitable manner to eligible entities of different sizes based on gross receipts." After that initial 60-day period, the SBA is free to make grants to eligible entities regardless of annual gross receipts. Note that the Act appears to permit the SBA to lengthen or shorten that initial period as it sees fit.
During the initial 21-day period in which the SBA is making grants (note, the period is not the same as the initial 60-day period described above that begins running on the date of enactment), it must give grant priority to small businesses owned by women or veterans, and to socially and economically disadvantaged small businesses. After that 21-day period, the SBA is required to award grants in the order the applications are received, but "may" take steps to ensure such applicants have access to RRF grants. Applicants should be aware that given the limited funds allotted to the RRF, applications should be submitted as soon as possible.
There are still many open questions about the RRF, including those about when eligible entities can begin applying, what the applications will require, and whether the SBA will alter any of the criteria set forth in the Act. The Much team will monitor developments and provide updates as they become available.