The Restaurant Revitalization Fund: What We Know

March 15, 2021

Updated: May 24, 2021

The Restaurant Revitalization Fund (RRF) application is officially closed as of Monday, May 24, 2021 at 8:00 PM EST.

Under the American Rescue Plan Act (the ARPA), $28.6 billion was allocated to the Small Business Administration (SBA) to administer to eligible organizations. The distribution of the allocated funds should be as follows:

  • $23.6 billion for the SBA to administer equitably to businesses of varying sizes based on gross receipts
  • $5 billion for businesses with gross receipts of $500,000 or less in 2019

Who is eligible?

Eligible businesses include any business where patrons or the public assemble for the primary purpose of being served food or drink, including restaurants, bars, breweries, food trucks, lounges, tasting rooms, tap rooms, inns, or other similar places. This includes entities who fall in any of these categories and are located in an airport terminal.

Entities that are ineligible include:

  • State or local government-operated businesses
  • Any business, as of March 13, 2020, owning or operating more than 20 locations, regardless of whether those locations do business under multiple names
  • A business that has a pending application for or has received a “Shuttered Venue Operators” grant
  • Publicly traded companies

The entity will need to submit a good faith certification that uncertainty of current economic conditions makes the grant request necessary to support ongoing operations.

The ARPA directs the SBA to give priority in the first 21 days of the program opening to small businesses owned or controlled by women, veterans or socially and economically disadvantaged individuals.

Socially disadvantaged individuals are defined as “those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.”

Economically disadvantaged individuals are defined as “those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities compared with others in the same business area who are not socially disadvantaged.”

How much is the grant?

Eligible businesses can receive a grant equal to the amount of its pandemic-related revenue loss, which is calculated by subtracting 2020 gross receipts from 2019 gross receipts. Any amount received from the Paycheck Protection Program (PPP) First Draw or Second Draw loans will be deducted from the pandemic-related revenue losses.

There are other calculations for businesses that were not in operation for the entirety of 2019 or not in operation until 2020. However, those calculations could change since the ARPA allows for the SBA to create their own formula.

The grants are capped at $10 million, and a grant for an individual business location cannot exceed $5 million.

What expenses are eligible?

Businesses can use the grant funds for:

  • Payroll
  • Mortgage payments
  • Rent
  • Utilities
  • Maintenance expenses, including construction to accommodate outdoor seating, as well as walls, floors, decks, furniture, fixtures, and equipment
  • Supplies, including PPE and cleaning materials
  • Food and beverage inventory expenses that are within the scope of normal business practice prior to the covered period
  • Covered supplier costs
  • Operational expenses
  • Aid sick leave
  • Any other expenses that the SBA determines as essential to maintaining the business

The covered period means the period beginning on February 15, 2020 and ending on December 31, 2020 (or a date determined by the SBA that is not later than two years after the enactment of the Restaurant Revitalization Fund).

How can businesses apply for the grant?

Qualifying businesses can apply online using the SBA’s web application portal. Alternatively, businesses may apply through SBA-recognized third-party point-of-sale vendors as well.

The SBA has provided a sample application form for businesses to review and begin preparing. The form will be completed via an online application portal.

What documentation is needed?

Businesses must complete, sign and submit IRS Form 4506-T, Request for Transcript of Tax Return, in order to verify tax information. This can be done by completing the form on the SBA online platform.

It is also required to provide documentation regarding gross receipts and eligible expenses. This requirement can be fulfilled by submitting any of the following documents:

  • Business tax returns
    • IRS Form 1120, S. Corporation Income Tax Return
    • IRS Form 1120-S, S. Income Tax Return for an S Corporation
  • IRS Forms 1040, S. Individual Income Tax Return
    • Schedule C, Profit or Loss From Business
    • Schedule F, Profit or Loss From Farming
  • For partnerships, the partnership’s IRS Form 1065, S. Return of Partnership Income, including Forms K-1, Partner’s Share of Income, Deductions, Credits, etc.)
  • Bank statements
  • Financial statements, such as income statements or profit-and-loss statements (prepared externally or internally)
  • Point-of-sale reports, including IRS Form 1099-K, Payment Card and Third Party Network Transactions

There are additional requirements pertaining to specific categories of businesses. Brewpubs, tasting rooms, taprooms, breweries, wineries, distilleries, bakeries and inns must submit documentation to demonstrate that on-site food and beverage sales to the public comprised at least 33% of gross receipts for 2019. Tax and Trade Bureau Forms 5130.9 or TTB may be accepted.

For those businesses that opened in 2020, the applicant’s original business model should have anticipated at least 33% of gross receipts in on-site sales to the public.

How is the funding calculated?

The program has set aside:

  • $5 billion for applicants with gross receipts of $500,000 or less in 2019
  • $4 billion for applicants with gross receipts ranging from $500,000 to $1.5 million in 2019
  • $500 million for applicants with gross receipts of $50,000 or less in 2019

A maximum of $5 million may be provided per location, not to exceed $10 million per individual applicant and all affiliated businesses. The minimum grant award is $1,000.

Grants will be determined based on the below calculations. Applicants whose operations began partially through 2019 may choose to use either Calculation 2 or Calculation 3.

1. Calculation #1, for applicants in operation on or before January 1, 2019 = 2019 gross receipts – 2020 gross receipts – Paycheck Protection Program (PPP) loan amounts

2. Calculation #2, for applicants whose operations partially began through 2019 = (average 2019 monthly gross receipts *12) – PPP loan amounts

3. Calculation #3, for applicants who began operations on or before January 1, 2020 and March 10, 2021, who have not yet opened but have eligible expenses = (amount spent on eligible expenses from February 15, 2020 through March 11, 2021) – 2020 gross receipts – PPP loan amounts

The Restaurant Revitalization Fund does not consider gross receipts to include:

  • Loan payments received from PPP loans (first-draw or second-draw)
  • Loan payments from or advances received on SBA Economic Injury Disaster Loans (EIDL), such as EIDL Advance or Targeted EIDL Advance
  • State and local grants
  • Loan payments received via SBA Section 1112 of the CARES Act

What is the tax treatment of the Restaurant Revitalization Grant?

Any amount received as a grant from the Restaurant Revitalization Fund is not included in the gross income of the person who receives the amount. No deduction or basis increase shall be denied; and no tax attribute is reduced by reason of the exclusion from gross income.

For partnerships and S corporations that receive the grant, any amount excluded from income is treated as tax-exempt income. With the grants being treated as tax-exempt income, they will be allocated to the partners or shareholders, increasing their basis in their partnership interest.

If you have any questions, please reach out to your BSSF Advisor or contact us.

Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our Firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.