COVID-19: Restaurant Revitalization Fund – Finance and Banking
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On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021, which provides an additional $ 1.9 trillion in new COVID relief funds, including, among other things, funding for a revitalization fund. $ 28.6 billion restaurants (the “RRF”). The RRF will provide grants (“RRF Grants”) to eligible restaurants to help offset lost income. Further details and further guidance should be provided by the SBA. Please see a brief summary of the main RRF provisions below.
WHO IS ELIGIBLE FOR RRF GRANTS?
Subject to the disqualifications set out below, a business is eligible for an RRF grant if it is a restaurant, food stand, food truck, catering cart, a caterer, saloon, inn, tavern, bar, lounge, brasserie, tasting room, bar, facility or local authorized to ‘a producer of alcoholic beverages where the public can taste, sample or purchase products, or any similar place of business where the public or customers meet for the primary purpose of being served food or drink.
A business that is otherwise eligible for an RRF grant will be considered disqualified from obtaining an RRF grant if it:
- is operated by a state or local government;
- as of March 13, 2020, owns or operates (along with any “Affiliate Business”) more than 20 sites, whether those sites do business under the same name or under more than one name;
- has a pending application or received a grant under the SBA’s Shuttered Venue Operators Grant Program; Where
- is, or is majority owned or controlled by, a listed company.
For the purpose of determining eligibility, an “affiliated company” is a company in which an eligible entity has capital or a right to profit distributions of at least 50%, or in which an eligible entity has the contractual authority to control the management of the company, provided that such affiliation is determined on the basis of any arrangement or agreement in force on March 13, 2020.
HOW MUCH CAN A RECIPIENT OF AN RRF GRANT RECEIVE?
A business eligible for an RRF grant (an “eligible entity”) may receive an amount equal to its “pandemic loss of revenue”, subject to a cap of $ 5,000,000 per physical location and a cap. total of $ 10,000,000 on RRF grants for an Eligible Entity and its Affiliated Companies.
The “pandemic revenue loss” of an eligible entity means:
- For most eligible entities, 2019 gross revenue minus 2020 gross revenue;
- For an eligible entity that did not operate throughout 2019, (a) 12 times its average monthly gross revenue in 2019, less (b) 12 times its average monthly gross revenue in 2020;
- For an eligible entity that opened between January 1, 2020 and March 10, 2021 (unless and until the SBA establishes another formula), (a) its salary costs (generally as defined for PPP) less (b) its gross receipts; Where
- For an eligible entity which has not yet opened on the date of the RRF grant application but which has incurred personnel costs (generally as defined for the PPP) by March 10, 2021 (unless and until that the SBA establish another formula), the amount of these expenses.
HOW DO PPP LOANS AFFECT THE AMOUNT OF A RRF GRANT?
To determine the amount of the RRF grants, the pandemic-related revenue losses for an eligible entity are reduced by any amount received from the PPP First Draw Loans and PPP Second Draw Loans.
WHAT CERTIFICATIONS SHOULD AN ELIGIBLE ENTITY MAKE WHEN APPLYING FOR AN RRF GRANT?
An eligible entity must certify in good faith that (i) the uncertainty of current economic conditions makes the grant application necessary to support its ongoing operations; and (ii) he has not applied for or received a grant under the SBA’s Shuttered Venue Operators Grant Program.
IS THERE A PRIORITY IN THE ALLOCATION OF RRF GRANTS?
Yes – during the initial 21-day period, applications from eligible entities owned and controlled by women, ex-combatants, or socially and economically disadvantaged individuals will be given priority. For the purpose of prioritization, an applicant must submit a self-certification of priority eligibility with the grant application.
In addition, during the first 60 days after promulgation, $ 5 billion of the $ 28.6 billion will be reserved for qualifying entities whose gross revenues in 2019 did not exceed $ 500,000, and thereafter, remaining funds will be open to any eligible entity regardless of the annual gross revenue amount of the Eligible Entity.
HOW TO USE THE PROCEEDS OF THE RRF GRANT?
An eligible entity that receives a grant from the RRF must generally use the proceeds during the period covered between February 15, 2020 and December 31, 2021, for the following:
- Salary costs (excluding (i) eligible salaries (as defined in paragraph (c) (3) of article 2301 of the CARES Act) taken into account in determining the credit granted under this article 2301 ; or (ii) the premiums taken into account in determining the credit granted under section 6432 of the Internal Revenue Code of 1986).
- Payments of principal or interest on any mortgage bond (which does not include any prepayment of principal on a mortgage bond).
- Rent payments, including rent under a lease agreement (which will not include any prepayment of rent).
- Maintenance expenses, including construction to accommodate outdoor seating; and walls, floors, deck surfaces, furniture, fixtures and equipment.
- Suppliers, including protective equipment (PPE) and cleaning products.
- Food and beverage expenses that are part of the qualifying entity’s normal business practices prior to the period covered.
- Supplier costs covered.
- Operational expenses.
- Paid sick leave.
- Other operational costs deemed essential to operations.
If an eligible entity that receives a grant from the RRF does not use all of the grant funds for the authorized expenses set out above or ceases operations permanently by December 31, 2021, it must return all the funds that the eligible entity has not used for authorized expenditure.
Any amount of an RRF grant to an eligible entity based on estimated revenue that is greater than the actual gross revenue of the eligible entity in 2020 must be returned.
IF I AM INTERESTED IN AN RRF GRANT, WHAT SHOULD I DO?
The SBA will develop regulations and forms to implement the RRF grant program. It is generally expected that eligible entities will eventually be able to apply for RRF grants through the SBA website.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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