“Update: Registration for the application portal for Restaurant Revitalization Grants will begin on April 30, 2021, and the Small Business Administration will open applications on May 3, 2021.”
The COVID-19 pandemic has been especially difficult for restaurants and hospitality businesses. The recently passed American Rescue Plan (ARP) includes Restaurant Revitalization Grants and a special fund for “shuttered venues” to provide targeted financial assistance to businesses in these industries that have suffered significant declines in revenue. The new programs come in addition to changes to the Paycheck Protection Program (PPP) and Employee Retention Credits (ERC) that are particularly beneficial to restaurants. Eligible restaurants and hospitality businesses should ensure that they have taken advantage of these programs to help them maintain employees, recoup the costs of COVID-19 expenses, and recover from the economic downturn.
Restaurant Revitalization Fund
The ARP established a $28.6 billion Restaurant Revitalization Fund to provide restaurants with nontaxable “Restaurant Revitalization Grants” of up to $10 million per business with a limit of $5 million per physical location. The fund will reserve $5 billion for businesses with gross receipts of $500,000 or less during 2019. For the first 21 days, the Small Business Administration (SBA) will prioritize small businesses owned and controlled by women, veterans, or socially and economically disadvantaged small businesses.
Eligible entities include restaurants, food stands, food trucks, food carts, and caterers. They also include saloons, inns, taverns, bars, lounges, brewpubs, taprooms, and tasting rooms. The fund excludes from eligibility an entity that is a state or local government-operated business; that owns or operates (together with any affiliated business) more than 20 locations as of March 13, 2020; or has a pending application for or has received a grant under the Shuttered Venue Operators (SVO) Grant program.
Expenses and grant amounts
Entities may use funds for payroll, mortgage principal and interest, rent, utilities, maintenance costs, food and beverage expenses, operational expenses, and paid sick leave. Eligible expenses must be incurred from February 15, 2020 to December 31, 2021, or a date determined by the SBA. An entity that does not use all grant funds or permanently ceases operations on or before the last day of the covered period must return any unused funds. Any amounts received are also reduced by any PPP loans received.
The amount of a grant will equal the amount of the pandemic-related revenue loss, which is the difference between an entity’s 2020 gross receipts and its 2019 gross receipts. If the entity was not in operation for the entirety of 2019, the calculation is the difference between (a) 12 multiplied by the average monthly gross receipts in 2019 and (b) 12 multiplied by the average monthly receipts in 2020.
If the entity opened after January 1, 2020 and before the date of enactment of this section, the calculation is the difference between any “eligible expenses” and any gross receipts. If the business is not yet in operation as of the application date of the grant, but it has incurred “eligible expenses” as of that date, the grant would equal those expenses.
The ARP also included an additional $1.25 billion for the $15 billion SVO Grant program. The program, which was established under the Consolidated Appropriations Act of 2021 (CAA), provides applicants with grants equal to 45 percent of their gross earned revenue, up to $10 million; $2 billion is reserved for eligible applications with 50 or fewer full-time employees.
Eligible entities are live venue operators or promoters; theatrical producers; live performing arts organization operators; relevant museum operators, zoos and aquariums who meet specific criteria; motion picture theater operators; talent representatives, and business entities that are owned by an eligible entity. The venue must have been in operation as of February 29, 2020, and the venue or promoter must not have applied for or received a PPP loan on or after December 27, 2020.
Expenses and grant amounts
Entities may use funds for payroll costs; rent; utilities; scheduled mortgage payments; scheduled debt payments on any indebtedness incurred in the ordinary course of business prior to February 15, 2020; worker protection expenditures; payments to independent contractors; other ordinary and necessary business expenses, including maintenance costs; administrative costs; state and local taxes and fees; operating leases in effect February 15, 2020; insurance payments; and advertising, production transportation, and capital expenditures related to producing a theatrical or live performing arts production.
Eligible entities that were in operation on January 1, 2019 can receive grants equal to the lesser of 45 percent of their 2019 gross earned revenue or $10 million. Eligible entities that began operation after January 1, 2019 can receive grants equal to the lesser of the average monthly gross earned revenue for each full month you were in operation during 2019 multiplied by six or $10 million.
Paycheck Protection Program
The ARP provided an additional $7.25 billion in funding for PPP loans in addition to the $284 billion that the CAA provided for “second draw” PPP loans. The CAA also made several changes to the forgivable loan program that could be particularly beneficial for restaurants.
Only businesses with fewer than 300 employees are eligible for “second draw” PPP loans if they have had a reduction in gross receipts during any quarter of 2020 of at least 25 percent compared to the same quarter in 2019. The CAA also allows borrowers to deduct ordinary business expenses paid with PPP loan proceeds from their federal income taxes. Borrowers must still use 60 percent of the loan proceeds for payroll costs in order to be eligible for full loan forgiveness.
The CAA also made changes targeted to businesses that provide lodging and/or prepare food and beverages for immediate consumption (NAICS code starting with 72). For these businesses, the CAA increases the loan amount to the lesser of 3.5 times the business’s “average total monthly payroll costs,” or $2 million. This is up from 2.5 times the “average total monthly payroll costs” for other businesses.
Employee Retention Credit
Restaurants could also be eligible for an ERC, which is a refundable payroll tax credit for certain wages paid during the pandemic. Several recent changes to the program could benefit restaurants.
The ARP extended the credit to qualified wages paid throughout the remainder of the 2021 calendar year, and the CAA increased the credit to 70 percent for 2021, up from 50 percent for 2020. The amount of qualified wages with respect to any employee is limited to $10,000 per quarter. The CAA also decreased the reduction in gross receipts necessary to quality for the credit for 2021 from a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis, to a greater than 20 percent reduction in the gross receipts for the same calendar quarter in calendar year 2019.
The ARP also includes additional ERC relief for “severely financially distressed employers,” which are employers that experienced a gross receipts reduction of more than 90 percent as compared to the same quarter in 2019. These employers may treat all wages paid to employees between June 30, 2021, and January 1, 2022, as qualified wages, regardless of their number of full-time employees.
Prior to the passage of the ARP, the CAA permitted businesses that received a PPP loan to qualify for the ERC retroactively. (Businesses that received a PPP loan were originally not eligible to claim the ERC.) However, any payroll costs for which a business claims an ERC are not eligible to be forgiven as part of the PPP. The high wage expenses of restaurants will allow them to claim only 60 percent of wages under the PPP and have enough wage expenses remaining to also claim an ERC.
The CAA also increased the employee threshold to be considered a large business from 100 to 500 for 2021. This classification as a small business allows all qualified wages paid by the entity to be eligible for the credit, regardless of whether an employee is furloughed. Additionally, employers with an average number of full-time employees in 2019 of 500 or fewer can receive the ERC in advance.
Recipients of grants from these programs could be subject to single audits. The SBA has provided an audit plan for the SVO program, but audit plans for other programs are undeveloped at this time. For more information about any of these programs, contact us. We are here to help.