March 15, 2021
American Rescue Plan Act Provides $28.6 Billion in Relief for Restaurant Industry
To our Clients and Friends:
On March 11, President Joe Biden signed into law the $1.9 trillion stimulus bill called the American Rescue Plan Act of 2021 (“Act”). The Act includes $28.6 billion for a Restaurant Revitalization Fund (“RRF”). The RRF is intended to help struggling bars and restaurants, which have been hard hit during the COVID-19 pandemic by authorizing the Small Business Administration (“SBA”) to make grants of up to $10 million in the aggregate ($5 million per physical location) to eligible entities and their affiliated businesses to cover pandemic-related losses. These grants are intended to be an improvement over last year's forgivable Paycheck Protection Program introduced in March 2020 under the CARES Act which did little to assist smaller restaurants and other hospitality establishments, making the RRF is a significant milestone for restaurants and bars that haven't had easy access to bank loans or private capital during the pandemic.
The Independent Restaurant Coalition (“IRC”) reports that the industry is down more than $219 billion in revenue from a year ago, lost nearly 50%, or 5.9 million, of its jobs between February and April 2020, with at least 4.5 million of those jobs provided by independent restaurants, and now employs 11 million while about 2 million are still out of a job since the pandemic hit. The IRC says that about 400,000 independent establishments continue to have financial trouble and at least 110,000 restaurants and bars closed in the past year.
Who is Eligible for a Grant?
Eligible entities are broadly defined as businesses where "the public or patrons assemble for the primary purpose of being served food or drink" and includes restaurants; food stands and food trucks; caterers; saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms and taprooms; and licensed facilities or premises of a beverage alcohol producer where the public may taste, sample or purchase products (nightclubs, music venues, concert halls and other entertainment venues would appear not to be included as the primary purpose of people patronizing such businesses is not to be served food or drink). Entities also includes affiliated businesses, defined as businesses in which the eligible entity as of March 13, 2020) has at least a 50% equity or right to profit distributions or has the contractual right to control the business. Eligible entities does not include publicly traded companies and entities (together with any affiliated businesses) that operate more than 20 locations under the same or different names.
How are the Grants Calculated?
The amount of any grant is limited to the eligible entity's "pandemic-related revenue loss" is defined one of the following (i) 2020 gross receipts subtracted from 2019 gross receipts, if the sum is greater than zero; (ii) 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; (iii) if the entity opened after January 1, 2020, the amount of its payroll costs (as defined in the CARES Act) less its gross receipts during that period; or (iv) 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.
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 defined in the CARES Act for PPP loans); mortgage principal and interest payments, but not principal prepayments); rent; utilities; 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 defined in the CARES Act for PPP loans); operational expenses; paid sick leave; and anything else determined by the SBA to be essential to maintaining the eligible entity.
Return of Grant 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 grant 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 2019 gross receipts 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 grant program’s first 21 days, the SBA must prioritize small businesses owned by women and veterans and to socially and economically disadvantaged small businesses. After that 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.
There still remains many open questions about the RRF, including when eligible entities can begin applying, what applications will require, and whether the SBA will alter any of the criteria set forth in the Act. Clients will have to pay very close attention to determining their eligibility, and if eligible, given the limited funds allotted to the RRF, to apply as soon as possible, as there is a concern that the RRF’s available funds will get snapped up quickly leaving some deserving businesses without any grants.
For further information or any questions on the Restaurant Revitalization Fund, please contact your relationship partner at CMXLaw, email us at firstname.lastname@example.org or visit our Retail, Restaurant & Hospitality practice group.
Crath Miller & Xistris LLP
Offices: New York
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