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05.07.2021 | Legal Advisory

After a year of devastating challenges for the restaurant industry, the American Rescue Plan Act of 2021 established the $28.6 billion Restaurant Revitalization Fund (“RRF”), a program operated by the U.S. Small Business Administration (“SBA”) to provide targeted aid to restaurants and other related businesses that serve food or drink. The RRF provides eligible businesses with funding equal to pandemic-related revenue losses of up to $10 million per business and no more than $5 million per physical location. Any relief granted by the RRF does not have to be repaid, provided that the funds are put toward eligible uses by March 11, 2023.

Who Is Eligible for RRF Funding?

Food and beverage related entities are eligible for RRF relief so long as (i) such entities are not permanently closed and (ii) are establishments “where the public may assemble for the primary purpose of being served food or drink”. Examples of such establishments include:

• Restaurants
• Food stands, food trucks, and food carts
• Caterers
• Bars, saloons, lounges, and taverns
• Alcohol producers or licensed facilities who provide the public the opportunity to taste, sample, or purchase products (including wineries and distilleries)
• Bakeries
• Brewpubs, tasting rooms, and taprooms
• Inns

In order to satisfy the requirement that entities are “places of business in which the public or patrons assemble for the primary purpose of being served food or drink”, an applicant must attest that on-site sales to the public comprised of at least 33% of gross receipts in 2019 and that the current economic uncertainty makes funding necessary to support the ongoing or anticipated operations of the applicant. For businesses who opened during the pandemic or have not yet opened, such applicant must demonstrate that their original business model contemplated at least 33% of gross receipts in on-site sales to the public. For purposes of the application, restaurants and bars are presumed to meet such standard whereas certain businesses whose primary purpose may fall outside of the traditional restaurant model, such as inns, bakeries, brewpubs, tasting rooms, taprooms, breweries, microbreweries, wineries, and distilleries, must provide documentation with their application evidencing that they satisfy said requirement. 

Entities that satisfy the above requirements located within another business that operate independently with their own taxpayer identification number (“TIN”) are also eligible for funding. Moreover, businesses that have filed for bankruptcy that are operating under an approved (confirmed) plan of reorganization under Chapter 11, Chapter 12, or Chapter 13 are also eligible for funding.

Who Is Not Eligible?

• Any entity with an expired TIN
• Any entity that is permanently closed, filed for Chapter 7 bankruptcy or Chapter 11, 12, and is not operating under an approved plan of reorganization
• Any entity that as of March 13, 2020, owned or operated (together with any affiliated business) more than 20 locations, regardless of the name or type of business at those locations
• Publicly traded entities
• Any entity that received or applied for a Shuttered Venues Operators Grant
• Nonprofit organizations

How Does a Business Calculate RRF Funding Eligibility?

The SBA supplies applicants with different methodologies for applying for RRF funds based upon the date when such applicant began making sales to the public:

(1) Applicants making sales to customers prior to January 1, 2019 should calculate their award amount as follows: 2019 gross receipts (as reported on 2019 federal return) less 2020 gross receipts (as reported on 2020 federal return or to be filed return less any amounts received from any similar debt relief or assistance program [i.e., PPP loan, SBA payment, etc.])

(2) Applicants that began making sales partially through 2019 may opt to determine their eligible reward by calculating their average monthly gross receipts and multiplying said monthly average by 12 to determine their projected 2019 gross receipts.

(3) Applicants that began making sales on or between January 1, 2020 and March 10, 2021 (or have not yet opened for sales but as of March 11, 2021 have incurred eligible expenses) may calculate their eligible reward by calculating their total eligible expenses and subtracting the gross receipts earned between January 1, 2020 and March 11, 2021 (as reported).

How Can an Entity Use RRF Funds?

RRF funds may be used for expenses incurred that are “necessary and mandatory for the operation of the business” incurred between February 15, 2020 and March 11, 2023 (the “Covered Period”). All RRF funds awarded must be used by the expiration of the Covered Period, and any funds not used during the Covered Period must be returned. All recipients must provide a breakdown of the amount of funds used against each eligible expense category by December 31, 2021. In addition, to the extent all funds have not been used by December 31, 2021, recipients will be required to report annually on the use of funds. 

Examples of eligible expenses include:

• Payroll costs, including sick leave and costs related to the continuation of employee benefits
• Payments on any business mortgage obligations (including principal and interest but excluding any prepayment) or debt service (including principal and interest but excluding any prepayment)
• Business maintenance expenses (i.e., maintenance of physical location, fixtures, and equipment), utility payments, and business supplies
• Construction of outdoor dining facilities
• Supplier costs that are essential to the operations of the entity when incurred, are made pursuant to a contract, order or purchase order in effect prior to receipt of RRF funds or during the Covered Period

How Does a Business Apply For and Receive RRF Relief?

The SBA has developed partnerships with several technology companies that already provide payment services to the restaurant industry. Eligible businesses that currently use one of these partners are encouraged to apply for funding directly through such partner’s website. Each partner may have a different, unique application process, so the applicant should follow the application instructions provided by such partner. 

Alternatively, an eligible business may submit an application directly through the SBA’s online application platform. Once an application is complete, the SBA will review, and if approved, will automatically deposit funds to the bank account provided by the applicant. The review process by the SBA will take approximately 14 days.

Finally, the SBA has support agents available to accept applications over the phone. Agents will mail completed applications to the applicant, which can be returned via mail to the SBA along with required documentation.

Regardless of the application method, the application must include (i) the name of the applicant; (ii) the applicant’s TIN; and (iii) the TIN of applicant’s owners holding more than 20% of the equity (or the owners of at least 20% of the equity, if no single owner holds at least 20%).

Do Any Businesses Receive Priority Funding?

The SBA will prioritize funding to small businesses at least 51% owned and controlled by women, veterans, and/or socially and economically disadvantaged individuals. During the first three weeks of the RRF program, the SBA will only be distributing funds to these priority businesses. To be eligible for priority funding, an applicant must self-certify on its application that it meets the eligibility requirements.  

In addition, the SBA has set aside the following funds for certain applicants:

• $5 billion for applicants with 2019 gross receipts of not more than $500,000
• An additional $4 billion for applicants with 2019 gross receipts from $500,001 to $1,500,000
• An additional $500 million for applicants with 2019 gross receipts of not more than $50,000

What Documents Must a Business Produce With Its Application?

All applicants must submit the following documentation to receive funding under the RRF program:

• The application (SBA Form 3172)
• Verification of tax information (IRS Form 4506-T)
• Documentation of gross receipts for 2020, and, to the extent the business was in operation, during 2019, which may include:
  • Business tax returns
  • Bank statements
  • Prepared financial statements
  • Point of sale reports

In addition, as outlined above, certain applicants must provide additional documentation evidencing that on-site sales comprised at least 33% of gross receipts.

Apply Now

As of April 30, 2021, qualified applicants can go here to create their account to apply for RRF funds. The SBA has begun reviewing and accepting applications. Additional information regarding the RRF can be found here on the SBA’s website. Please do not hesitate to contact one of the authors or your Nutter attorney with any questions you may have on navigating this process.

This advisory was prepared by Portia Keady, Michael Kushnir, and Elizabeth Myers in Nutter’s Corporate and Transactions Department. For more information, please contact Portia, Michael, Elizabeth, or your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.