Updated 5/4

Applications opened Monday, May 3, for the Small Business Administration’s (SBA) new Restaurant Revitalization Fund (RRF) program, intended to help restaurants and alike businesses impacted by the COVID-19 pandemic.

Note that all eligible applicants can now apply, even though “for the first 21 days that the program is open, the SBA will prioritize funding applications from businesses owned and controlled by women, veterans, and socially and economically disadvantaged individuals,” SBA has said. (Read on for more about these priority groups.)

Read on for highlights of how to apply, who is eligible, how to calculate grant amounts, what grant funds can be used for, and more. Interested businesses should also watch the SBA’s program Guide (first released April 17, and last updated April 28), FAQ, and sample application for details and updates.

We also recently hosted a webinar that goes through the calculations, application process, and other key information in more detail. Register to access the recording. 

Background

The March American Rescue Plan Act created this $28.6 billion fund to be administered by SBA specifically for restaurant and alike operators. As with the Paycheck Protection Program (PPP), RRF applicants must make a good-faith certification that “current economic uncertainty makes this funding request necessary to support the ongoing or anticipated operations of the applicant.”

These grants are excluded from taxable income, and all expenses paid with grant proceeds are deductible for federal tax purposes.

Who is eligible for RRF grants?

“Eligible entities” are defined as:

• Restaurants, food stands, food trucks, food carts, caterers, bars, saloons, lounges, taverns, snack and nonalcoholic beverage bars, “licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products,” or “other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink,” including an entity located in an airport terminal, an entity that operates independently (has its own tax identification number) inside another business (i.e., a restaurant in a hotel or conference center), or a Tribally-owned concern (any concern that is at least 51% owned by an Indian tribe).
  • Bakeries, brewpubs, tasting rooms, taprooms, breweries, microbreweries, wineries, and distilleries must provide additional documentation to support that at least 33% of 2019 gross receipts were derived from on-site sales to the public.
  • Inns will be eligible if on-site sales of food and beverage to the public made up at least 33% of total 2019 gross receipts. 
  • The Guide states, “To satisfy the statutory requirement for ‘place of business in which the public or patrons assemble for the primary purpose of being served food or drink,’ an eligible entity must have at least 33% in 2019 on-site sales to the public. The original business model of eligible entities that opened in 2020 or that have not yet opened should have contemplated at least 33% of gross receipts in on-site sales to the public. Those entities without additional documentation requirements, such as restaurants and bars, are presumed to have on-site sales to the public comprising at least 33% of gross receipts in 2019. All Applicants must attest in the application to the following: ‘The Applicant is eligible to receive funding under the rules in effect at the time this application is submitted.’ ”
• Entities must be organized as C corporations, S corporations, partnerships, limited liability companies, sole proprietors, self-employed individuals, independent contractors, and tribal businesses. All other forms of organization are ineligible.
• Entities must have a valid Business Tax Identification Number (TIN), which can be an EIN, SSN, or ITIN. Applicants must provide a TIN for the business and all equity owners of 20% or more. The Guide includes details on what parties are considered owners; what type of number a sole proprietor should use; and more; read on for more information, or see Page 14 of the Guide.
• The entity must be currently open for business; temporarily closed; or planning to open soon, with expenses incurred as of March 11, 2021.
• Entities must have not filed for bankruptcy or must be operating under an approved (confirmed) plan of reorganization under a Chapter 11, Chapter 12, or Chapter 13 bankruptcy. 
• As of March 13, 2020, the entity must own or operate (together with any affiliated business) 20 or fewer locations, “regardless of name or type of business at those locations” 
  • The American Rescue Plan Act defined an affiliated business as a business in which:
    • “an eligible entity has an equity or right to profit distributions of not less than 50%,” or
    • “an eligible entity has the contractual authority to control the direction of the business”
    • SBA’s FAQ addresses the following concerns in regards to identifying affiliates:
      • “Sole proprietors (and self-employed individuals) must count as affiliates all businesses reported on IRS Form 1040, Schedule C.”
      • “A holding company (which is a company that owns real estate for the benefit of an operating business) whose sole purpose is to hold the real estate for the eligible Applicant business should not be counted as a location or affiliate.”
      • “However, if Applicant business owns a holding company or management company that owns or manages a business other than the Applicant business, you must count these entities as separate affiliates and locations.”
    • Continue to our section “Locations, Affiliates, Corporate Groups, and EINs” for more information and guidance related to affiliates and multiple locations. 
• If the applicant is operating under a franchise or “similar agreement that meets the Federal Trade Commission definition of a franchise in 16 CFR 436,” the franchise must be listed on the SBA Franchise Directory, or, if not listed, must submit the Franchise Disclosure Document (or other agreement) and all other documents a franchisee is required to sign to franchise@sba.gov.

Entities that are NOT eligible:

• Entities that as of March 13, 2020, own or operate (together with any affiliated business) more than 20 locations, regardless of name or type of business at those locations 
• Permanently closed businesses
• Entities with expired EINs, SSNs, or ITINs
• Entities that have filed Chapter 7 bankruptcy, or that have filed a Chapter 11, 12, or 13 bankruptcy and are not operating under an approved (confirmed) plan of reorganization
• Publicly traded companies
• State or local government-operated entities
• All nonprofit organizations
• Entities with pending or approved grants under Section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, known as Shuttered Venue Operators Grants (SVOGs)

Funding priorities

SBA has set aside funds from the total RRF allotment specifically for small businesses. $5 billion has been earmarked for eligible entities with not more than $500,000 of 2019 gross receipts; $4 billion for eligible entities with between $500,001 and $1,500,000; and $500 million for eligible entities with not more than $50,000. 

Further, for the first 21 days, all grants will be prioritized for small businesses that are at least 51% owned and controlled by women, veterans, or other socially and economically disadvantaged groups (as defined in Sections 3(n), 3(q), and 8(a)(4)(A) of the Small Business Act, respectively, or see Page 21 of the Guide). An applicant will be considered eligible for this priority if it is at least 51% owned by one or more individuals who are women, veterans, or socially and economically disadvantaged, and if the management and daily business operations of the applicant are controlled by one or more such individuals. RRF applicants must self-certify that they meet all eligibility requirements. 

Paycheck Protection Program applicants

An entity can receive both a PPP loan and an RRF grant, but potential RRF grant amounts will be reduced by any PPP loans (first- and second-draw) received. Thus, applicants with a pending PPP loan application should withdraw the outstanding PPP application upon applying for the RRF.

Calculation of grant amounts

An eligible entity may receive a grant equal to the amount of its “pandemic-related revenue loss.” Pandemic-related revenue loss is generally determined by subtracting 2020 gross receipts from 2019 gross receipts, though there are different calculations for businesses that opened during 2019 or later. 

An entity’s pandemic-related revenue losses are reduced by any PPP loans (first- and second-draw) received. 

SBA’s Guide states “the amounts required to calculate gross receipts varies by the entity tax return type”; see Page 19 for details.

When computing gross receipts, an applicant should not include any received PPP loans, SBA Section 112 payments, Economic Injury Disaster Loan (EIDL) loans, EIDL Advances, Targeted EIDL Advances, or any state and local small business grants (via the CARES Act or otherwise), among other items outlined in the Guide (see Page 20).

Total grant amounts are limited to $10 million for each affiliated restaurant group and further limited to $5 million per physical location. Any grant request under $1,000 has been determined to be de minimis and therefore will not be funded. 

To aid operators in calculating their grant amounts, SBA has provided three separate calculations for eligible entities, based on when they began operations. Learn more about each calculation in our webinar, in which we discuss them in more detail; or, see pages 6-8 of the sample application for calculation tables or pages 7-9 of the Guide for step-by-step process. But in summary, they are:

• Calculation 1: The simplest of the three, to be used by entities in operation on or prior to Jan. 1, 2019. Generally, this involves subtracting 2020 gross receipts from 2019 gross receipts, and subtracting any PPP loans received.
• Calculation 2: For applicants that began operations partially through 2019. This calculation generally involves subtracting 2020 gross receipts from 2019 monthly average gross receipts multiplied by 12, and subtracting any PPP loans received. (These applicants can also choose to use Calculation 3.)
• Calculation 3: For applicants that began operations on or between Jan. 1, 2020, and March 10, 2021; and for applicants that have not yet opened but as of March 11, 2021, but have incurred eligible expenses. These applicants would subtract 2020 and 2021 (through March 11, 2021) gross receipts from eligible expenses incurred between Feb. 15, 2020, and Mar. 11, 2021, and subtract any PPP loans received. Of note is that the American Rescue Plan Act based this group’s calculations on only their payroll expenses; the Guide now bases it on all eligible expenses, as described below. 

SBA explains that “For purposes of calculating funding amount, ‘in operation’ means the day the entity started making sales. This does not mean the day the Applicant registered with the Secretary of State to establish the Applicant’s legal entity.”

The application also includes a Calculation/Table 4 “for applicants that operate multiple locations using different calculations,” to aggregate the amounts together.

Note that any corrections after submission will restart SBA’s review and payment timeline; SBA says that it might take “upwards of 14 days from the time of resubmission” for them to finalize review of the application. Corrections will need to be made through the application portal or by phone, and new documentation will need to be submitted. No corrections will be allowed to awards after they have been paid.

Eligible expenses and covered period

RRF monies received may be used for any of the following items during the covered period of Feb. 15, 2020, to March 11, 2023. (For permanently closed entities, the covered period ends on the date of closure or March 11, 2023, whichever is sooner.) If an eligible entity does not use all grant funds by the designated deadline, any remaining funds must be returned to the Treasury.

• Payroll costs, including sick leave and costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums 
• Payments on any business mortgage obligation (both principal and interest, but not any prepayment of principal) 
• Rent payments, including rent under a lease agreement (but not including any prepayment)
• Business debt service (both principal and interest, but not any prepayment of principal or interest)
• Utilities “for the distribution of electricity, gas, water, telephone, or internet access, or any other utility that is used in the ordinary course of business for which service began before March 11, 2021.”
• Maintenance expenses, including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment.  While entities will not be able to use funds for expansion purposes, they can use them to replace furniture, fixtures, and equipment (FF&E) or broken-down food trucks, SBA said in its FAQ.
• Construction of outdoor seating
• For purposes of Calculation 3, depreciation is an eligible expense, SBA’s FAQ says; however, SBA noted in a webinar that accelerated depreciation is not eligible.
• Supplies, including PPE and cleaning materials
• Normal food and beverage inventory expenses, including raw materials for beer, wine, or spirits
• Covered supplier costs, defined as “an expenditure made by the eligible entity to a supplier of goods for the supply of goods that: Are essential to the operations of the entity at the time at which the expenditure is made; and 
  • “Is made pursuant to a contract, order, or purchase order in effect at any time before the receipt of Restaurant Revitalization funds; or
  • “With respect to perishable goods, a contract, order, or purchase order in effect before or at any time during the covered period” 
• Business operating expenses, defined as “business expenses incurred through normal business operations that are necessary and mandatory for the business (e.g. rent, equipment, supplies, inventory, accounting, training, legal, marketing, insurance, licenses, fees). Business operating expenses do not include expenses that occur outside of a company’s day-to-day activities.” The Guide adds that “Past-due expenses are eligible if they were incurred beginning on Feb. 15, 2020, and ending on March 11, 2023.”

Annual reporting

Eligible entities that receive RRF funds will be required to report to SBA no later than Dec. 31, 2021, how they have used their funds for eligible expenses. If, by Dec. 31, 2021, the entity has not expended all its funds, the annual reporting requirement continues until funds have been fully expended. Entities must certify that funds have been spent on eligible expenses, and “SBA reserves the right to request supplemental documentation needed to validate the certification.”

How do I apply?

An eligible entity can apply for RRF via:

1. A recognized SBA Restaurant Point of Sale (POS) Partner

• Applicants who use Toast or Square for POS services can apply directly through them and skip the SBA application process.
• Applicants who use NCR Aloha, Clover, Oracle Micros, Heartland, or Lightspeed/Upserve by Lightspeed can obtain and provide official documentation from them; however, they still need to apply via the SBA portal on their own.

2. Directly via the SBA website (restaurants.sba.gov) 

3. Via telephone at 844.279.8898

For more information, see Page 11 of the Guide, or watch our on-demand webinar.

What do I need on application day?

• Completed SBA Form 3172 (the RRF application; this can be completed on the SBA portal)
• Completed IRS Form 4506-T (this can be completed on the SBA portal)
• Bank account information for the applicant’s commercial business account, including the three most recent months of bank statements (“In cases of sole proprietors operating without a commercial account, SBA will require supporting documentation to demonstrate this account is utilized for restaurant operations, and it is owned by the sole proprietor,” the Guide notes)  
  • Please note, applicants are being asked for their banking credentials to help verify the account information provided via the automated linking service.
• Documentation of gross receipts and/or eligible expenses as required for your grant amount calculation
  • Applicants that were in operation prior to or on Jan. 1, 2019: Documentation of gross receipts for 2019 and 2020
  • Applicants that began operations partially through 2019 and use Calculation 2: Documentation of gross receipts for 2019 and 2020 
  • Applicants that began operations partially through 2019 and use Calculation 3: Documentation of gross receipts for 2020 
  • Applicants that began operations on or between Jan. 1, 2020, and ending on March 10, 2021 and applicants that have not yet opened as of March 11, 2021, but have incurred eligible expenses: Documentation of gross receipts and eligible expenses for the length of time in operations 
  • Eligible support for gross receipts consists of:
    • Business tax returns
      • For applicants that need to support their 2019 gross receipts, the 2019 tax returns are the required method of documentation
      • Federal tax returns are also a preferred method for 2020 gross receipts
    • POS reports, including IRS Form 1099-K (another preferred method for 2020 and 2021)
    • Form 1040 Schedule C or F for sole proprietors
    • Internal or externally prepared financial statements such as income statements or profit or loss statements (signed, dated, and certified) will be accepted, but could delay processing beyond the 14-day period
  • Support of eligible expenses consists of:
    • Internal or externally prepared financial statements such as income statements or profit or loss statements (signed, dated, and certified) will be accepted, but could delay processing beyond the 14-day period
    • Invoices, payment receipts, business debt statements, and payroll documents (such as forms 941 or other third-party payroll reports) also will be accepted, but may delay review of application past 14 days 
  • Additional documentation is required from entities with “33% of gross receipts” requirements as outlined earlier: 
    • For breweries, distilleries, wineries, brewpubs, tasting rooms, taprooms, bakeries, and others required to support that 33% of their gross receipts came from on-site sales to the public, the applicant may provide items such as any 2019 Tax and Trade Bureau forms filed, state or local government documentation, or internally created inventory, sales, or accounting reports.
    • For entities operating as an inn, documents such as internally created revenue or accounting reports may be provided to support the 33% requirement for on-site food and beverage sales to the public.  

Additional guidance on EINs and ownership

Locations, Affiliates, Corporate Groups, and EINs

• A restaurant or similar business with multiple locations under the same EIN “must apply for all locations in one single application.” SBA states. “Applicants may not apply on behalf of other entities such as affiliates or subsidiaries.” 
• If an applicant owns multiple restaurants (or similar businesses) that each have their own EIN and each files their own federal income tax returns, each restaurant must file their own separate RRF application.
• If an applicant has multiple locations operating under one EIN with varying dates whereby operations began, the fund amount may be calculated by utilizing multiple calculation methods and rolling that amount up to a total potential funding amount. 
• Applicants with multiple RRF applications with separate EINs but one PPP loan must apply for the RRF grant using the EIN for the entity that received the first-draw PPP loan, SBA has stated in an RRF FAQ. Such an applicant must aggregate their calculations for the separate locations that are eligible for the RRF, and may not include gross receipts (or eligible expenses, if utilizing Calculation 3) from locations that are not eligible.
• SBA’s FAQ provides the following instructions for answering the application’s question regarding whether the applicant has affiliates:
  • “You must select ‘yes,’ if the RRF eligible applicant entity has an equity interest or right to profit distributions of 50% or greater of one (or more) other business entity; and/or
  • “You must select ‘yes,’ if any owner of 20% or greater equity interest of the RRF eligible applicant entity has an equity interest or right to profit distributions of 50% or greater of one (or more) other business entity; and/or
  • “You must select ‘yes,’ if the Applicant business is a holding company or management company that owns or manages a business other than the Applicant business, or if the Applicant business is held or managed by a company that owns or manages other businesses you must count these entities as separate affiliates and locations.
• Applicants who own or operate a single corporate group with more than 20 total locations (regardless of whether those locations are RRF-qualified businesses) will not be eligible for RRF at the corporate group or affiliate level.
• Additionally, all locations owned by the corporate group count toward the RRF limitations on locations and the maximum funding amount of $10 million. 
• Per current SBA FAQ guidance, “When individuals or entities directly or indirectly own or control multiple locations, all locations must be counted toward the 20 location maximum limit for eligibility and the $10 million aggregate limit on RRF funding. This includes any locations that operate under separate tax identification numbers or names, and applies whether or not ownership or control is through an individual, management or holding companies or other entities. All locations must be counted, even if they are not eligible entities for RRF. For the RRF program, SBA considers common stock owners and/or operators to be a de facto corporate group. This applies even to LLCs that are disregarded entities.”
• We strongly advise that all interested applicants with corporate group or affiliate concerns seek legal advice to determine the application of these rules to their individual situation.

Ownership

Applicants must list all owners of 20% or more of the business on the application. The total equity reported on the application across these owners (with “owners” defined by SBA as including sole proprietors, general or limited partners, LLC members, or trustors) does not have to add up to 100% of all equity outstanding, if all 20% or more owners are listed. If no owner has at least 20% ownership, the applicant must list owners whose combined equity represents at least 20% of the ownership of the eligible entity.

Owners must be listed with their EIN, SSN, or ITIN. “If an owner of 20% or more of the business does not have a SSN or ITIN, the business is NOT eligible,” SBA states.

What does CohnReznick think?

For more information on the RRF, register for our on-demand webinar or reach out to our team or your trusted advisors.

Contact

Stephanie O’Rourk, CPA, Partner, Hospitality – Emerging Concepts and Operational and Financial Consulting

404.250.4079

Taylor Sphon, CPA, Senior Manager, Tax

301.280.3602