How the Restaurant Revitalization Fund will affect your favorite restaurant

Built in the Bay
(Spencer Platt / Getty Images)

By Huey Bergstrom

Restaurants have been ravaged by pandemic-related shutdowns, missing millions in revenue and forcing a littany of restaurants to shut their doors for good. The Biden administration's Restaurant Revitalization Fund (RRF) offers local restaurants and franchises a chance at financial solvency despite the lingering economic effects of the pandemic.

The stimulus bill passed in March allotted $28.6 billion for grants to be dolled out to restaurants equivalent to each venue's pandemic losses. Restaurants can begin registering as early as April 30 and can submit their applications by noon May 3. While the RRF will likely help a number of restaurants across the country, there are some specifics about qualifications that are useful to know.

The Basics

Individual venues can apply for up to $5 million on the Small Business Administration (SBA) website. Restaurant groups can apply for up to $10 million as long as they have fewer than 20 locations and are not a publicly traded company. During the first three weeks, the SBA will only process applications from small businesses run by women, veterans or people from economically and socially disadvantaged groups.

In an attempt to help all restaurants, the SBA will set aside $5 billion for food businesses earning less than $500,000 a year, $4 billion for mid-sized restaurants (taking in between $501,000 and $1.5 million a year) and $500 million for establishments making less than $50,000 a year.

The lengthy list of eligible applicants includes bakeries, restaurants, food trucks, food stands, snack bars, caterers, saloons, inns, taverns, bars, brewpubs, taprooms, wine tasting rooms and distilleries.

Bakeries, inns, brewpubs, distilleries and wineries must show on site food sales that amount to 33% of gross receipts, according to SBA qualifications.

Funds can be used for any expenses incurred from Feb. 15, 2020 to March 11, 2023. Any money left over at that point, although that seems unlikely, would need to be returned.

A draft application asks for documentation of gross receipts and eligible expenses and the SBA is intentionally casting a big net. It was ostensibly designed to ease the application process for the business owner. Business tax returns, IRS 1040 forms, bank statements, income or profit and loss statements can all be used on the applications. As mentioned, for bakeries and other locations, their paperwork must show that 33% of their gross receipts come from food sales.

As reported in Eater SF, grants are designed to equal and establishment's "pandemic-related revenue loss" but the calculation hinges on how long a location has been open. Venues that were open all of 2019 have relatively simple math: subtract the smaller 2020 gross receipts from their larger 2019 gross receipts. That subtracted amount is what the establishment can expect in grants. Locations that were only open part of 2019 will need to subtract the 2020 gross receipts from a pre-pandemic average of monthly receipts. Luckily, venues that have not opened yet but have still racked up expenses from the pandemic, are elligible. These locations will subtract their eligible expenses (payroll, rent, construction for outdoor seating) from all gross receipts.

Fewer Spending Restrictions

As opposed to the PPP loans which had specified spending restrictions, these grants do not. The money from the RRF can be spent on any expenses that the SBA “determines to be essential to maintaining the eligible entity." What that means in practice is: payroll (including health care), rent and utilities, mortgage obligations (including principal and interest), outdoor dining builds and other construction costs, supplier costs, operational expenses and paid sick leave.

Additionally, restaurants can use the funds to pay off business credit cards, third-party delivery commissions, unforgiven portions of PPP loans, propane for food trucks, and insurance for food truck vehicles the SBA said during various town halls on the program.

In contrast with PPP loans, restaurants that have not officially opened but have still incurred losses due to the pandemic, are still eligible for the RRF. Another key difference between the two is that RRF money can be spent on the mortgage pricinpal where PPP money could only be spent on the mortgage interest and restaurants can use the money to pay suppliers, something that was not guranteed with PPP money.

RRF money can also be used to pay property taxes.

The only thing businesses can't spend the money on is expansion. While a location can spend the RRF money on updating outdoor seating they cannot use the money to open a new location.

The Downside

There are a number of ineligible restaurants including those that have permamnently closed, publicly traded companies (although franchises are eligible), a restaurant group with more than 20 locations, locations that have received the shuttered venue operators grant, locations that have filed Chapter 7 bankruptcy or liquidated under Chapter 11 and hotel restaurants without an employee identification number.

Additionally, the wide net cast for applicants likely means that the allotted money will go quickly, compounding that with the fact that the first three weeks required qualified applications and it's likely that the money will run out quickly.

In a town hall in April, SBA associate administrator Julie Verratti seemed optimistic that the fund would be replenished, similar to the numerous replenishments of the PPP loans, despite it's likey quick allotment.

“I do think this money will be expended quickly,” she said during the town hall. To make matters worse, those comments were made before the total sum of money was whittled down to $28.6 billion rather than the initial $120 billion asked for the fund.

Senate Majority Leader Chuck Schumer has indicated that the fund would be replinshed when it runs out, but such a statement is much more of a hopeful promise than a gurantee. If the Democrats loose their majority in the midterm elections, that fund will likely stay dry, leaving thousands of restaurants high and dry.

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