Restaurant Revitalization Fund Guidance

Michael W. Goldman and Nicholas L. Simon

On March 11, 2021, the American Rescue Plan Act (“ARPA”) established the Restaurant Revitalization Fund (“RRF”) and appropriated $28.6 billion for the U.S. Small Business Administration (“SBA”) to award to restaurants, bars, and other similar places of business that serve food or drink. On April 17, 2021, the SBA issued a RRF Program Guide addressing RRF eligibility, use of funds, and other important details for prospective applicants.

Eligibility:

Under the RRF, eligible entities are businesses (1) that are open, temporarily closed, or opening soon with expenses incurred as of March 11, 2021; and (2) where the public or patrons assemble for the primary purpose of being served food or drink, including restaurants, bars, food trucks, bakeries, brewpubs, tasting rooms, taprooms, breweries/microbreweries, wineries, distilleries, and inns. Permanently closed businesses are not eligible.

a)  On-Site Revenue Minimum

To be eligible for the RRF, at least 33% of the business’s 2019 gross receipts must have been from on-site food and beverage sales to the public (“On-site Revenue Minimum”). Bakeries, brewpubs, tasting rooms, taprooms, breweries/microbreweries, inns, wineries, and distilleries (collectively, “Documenting Businesses”), must provide documentation that they meet the On-Site Revenue Minimum. For Documenting Businesses that opened in 2020 or that have not yet opened, the applicant’s original business model must have contemplated gross receipts that meet the On-Site Revenue Minimum.

Businesses that are not classified as Documenting Businesses, such as traditional restaurants and bars, are presumed to meet the On-Site Revenue Minimum. These businesses must attest in their application that they meet the On-Site Revenue Minimum, but they are not required to provide documentation.

b)  Maximum Number of Locations and Ownership

To be eligible for the RRF, the applicant may own or operate, together with any affiliated businesses, a maximum of 20 locations, regardless of the name or type of business at the locations. An affiliated business or affiliate is a business in which the applicant has an equity interest or right to profit distributions of not less than 50 percent, or in which the applicant has the contractual authority to control the direction of the business. The number of locations for each applicant will be determined as of March 13, 2020.

Applicants must list all owners of 20% or more of the business on the application. The listing for each owner must include the owner’s Social Security Number (“SSN”) or Individual Taxpayer Identification Number (“ITIN”). If an owner of 20% or more of the business does not have a SSN or ITIN, the business is not eligible.

c)  Eligible Entity Types and Participation in Other COVID Related Government Programs

All types of businesses entities (corporations, partnerships and limited liability companies) and sole proprietors, self-employed individuals, and independent contractors are eligible for the RRF.

In addition, businesses that received a PPP loan (both first draw and second draw), Economic Injury Disaster Loan (“EIDL”), EIDL Advances, or Targeted EIDL Advances are eligible for the RRF.  Participation in these programs is not required to be eligible for the RRF. On the other hand, businesses that received a Shuttered Venues Operators Grant or have a pending application for a Shuttered Venues Operators Grant are ineligible for the RRF. RRF applicants must make a good faith certification that the applicant does not have a pending application for and has not received a Shuttered Venue Operator grant from SBA.

d)  Franchises and Bankruptcy

Applicants operating under a franchise agreement or similar agreement that meets the Federal Trade Commission definition of a franchise may be eligible for the RRF. To be eligible, the franchise must be listed on the SBA Franchise Directory with a franchise identifier code. Additional eligibility requirements, in addition to listing on the SBA Franchise Directory, may apply to franchises seeking to participate in the RRF.

Applicants that have filed for bankruptcy and are operating under an approved/confirmed plan of reorganization under Chapter 11, Chapter 12, or Chapter 13 are eligible for the RRF. However, applicants that have filed for a Chapter 7 bankruptcy or who have filed a Chapter 11, 12, or 13 bankruptcy but are not operating under a plan are ineligible for the RRF.

RRF Amount:

RRF applicants must make a good faith certification that current economic uncertainty makes the funding request necessary to support the ongoing or anticipated operations of the applicant. This language is similar, but not exactly the same as the necessity certificate used in the PPP program. Specifically the words “or anticipated” is added to the RRF certification. Similar to the PPP program, we recommend that RRF applicants create a written record or file of how they determined that the funding request is necessary to support its ongoing or anticipated operations. The RRF will provide restaurants and other eligible applicants with funding equal to their pandemic-related revenue loss up to $10 million per applicant and its affiliated businesses, but no more than $5 million per physical location. Applicants must request at least $1,000. The estimated pandemic-related revenue loss for a RRF applicant in operation prior to or on January 1, 2019, is as follows: 2019 gross receipts minus 2020 gross receipts minus PPP loan amounts. These RRF calculations are business specific and applicants may need to seek guidance from accounting or other professionals.

Eligible Uses of Funds:

Recipients must use any RRF funds received prior to March 11, 2023. Recipients are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023.

Unlike the original round of PPP, the eligible uses of RRF funds is broad, and we expect that most eligible businesses will not have a problem finding eligible uses for funds.  Specifically, RRF funds must be used for specific expenses including payroll costs (including sick leave and health care costs), mortgage payments, rent payments, debt payments, utility payments, business maintenance expenses, construction, business supplies (including protective equipment and cleaning supplies), business food and beverage expenses (including raw materials), and necessary and mandatory business operating expenses in the normal course of business. In addition, RRF funds may be used on expenditures made by the eligible entity to a supplier of goods for the supply of goods that: (1) are essential to the operations of the business at the time at which the expenditure is made; and either (2) is made pursuant to a contract, order, or purchase order in effect at any time before the receipt of RRF funds or (3) with respect to perishable goods, a contract, order, or purchase order in effect before or at any time prior to March 11, 2023.

RRF funds may not be used for prepayment of debt, prepayment of rent, or compensation to any owner or individual employee in excess of $100,000 on an annualized basis.

Set-Asides:

The SBA has set-aside funds that are available only for certain applicants:

• $5 billion for applicants with 2019 gross receipts of not more than $500,000;
• $4 billion for applicants with 2019 gross receipts from $500,001 to $1,500,000; and
• $500 million is set aside for Applicants with 2019 gross receipts of not more than $50,000.

Priority in Awarding Funds:

The SBA will prioritize awarding RRF funds to small businesses at least 51 percent owned and controlled by individuals who are women, veterans, and/or socially and economically disadvantaged individuals. Socially disadvantaged individuals are defined as those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities. Individuals who are members of the following groups are presumed to be socially disadvantaged: Black Americans; Hispanic Americans; Native Americans (including Alaska Natives and Native Hawaiians); Asian Pacific Americans; or Subcontinent Asian Americans.  Economically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged.

During days 1-21 of the RRF, the SBA will accept applications from all eligible applicants but will only award funds to applicants that has self-certified that it meets the eligibility requirements for a small business concern owned by women, veterans, or socially and economically disadvantaged individuals. For the remainder of the RRF, the SBA will distribute funds in the order in which applications are approved by the SBA.

For more information or assistance, please contact us or a member of the KMK Law Business Representation and Transactions Team.