May 27, 2021 | Last Updated on: January 12, 2024
DISCLAIMER: This article was written in 2021 and has not been updated. For more up to date information about small business funding products and options, please browse our recent articles.
As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
As vaccination rates sharply rise and more and more states move to partial or total reopening, restaurants are getting ready to get back into the full swing of things.
In response to the acute economic pain felt by restaurants, within the American Rescue Plan Act of 2021 the Biden administration included a program that specifically targets restaurants, bars, and other eligible businesses so that they can keep their doors open, continue employing their workers, and fully recover from the COVID-19 pandemic. This program, the U.S. Small Business Administration’s (SBA) Restaurant Revitalization Fund, is designed to provide emergency assistance to those food establishments hardest hit by the COVID-19 crisis.
We have put together a guide that analyzes the inner workings of the program, an analysis/reporting of how the launch of the program has gone, who is eligible for the funds, and the logistics of applying for and obtaining these loans.
The Restaurant Revitalization Fund (RRF) is a component of the American Rescue Plan designed to provide emergency funding to small and medium-sized restaurants and similar food-related businesses so they can “keep their doors open” and the economy gradually opens back up and the country undergoes its economic recovery.
The program has been allocated $28.6 billion that will be awarded through the SBA. The appropriated funds will remain available until totally expended. While there are reports of an oversubscription of funds, there are many active efforts to pressure Congress to appropriate more funds for the program in the wake of higher than expected demand.
The program will provide restaurants with funding equal to their pandemic-related revenue loss up to $10 million per business, no more than $5 million per physical location, and at least $1,000. The SBA’s RRF program guide provides a step-by-step guide for five types of businesses:
Depending on where you fall in those categories, your calculation of “pandemic-related revenue losses” will be slightly different. Each type of applicant will want to have 2019 and 2020 gross receipts, whichever is applicable, as well as information about any Paycheck Protection Program (PPP) loan, Second Draw PPP loan, and SBA Economic Injury Disaster Loans (EIDL), as they form the bulk of the calculation source materials.
These funds, as long as they are used no later than March 11th, 2023, are not required to pay back. They are effectively grants from the SBA to small businesses, as long as they are used for eligible expenses in a timely manner. Any funds left unused by March 11th, 2023 will have to be returned to the government.
Here’s our summary of what is considered an eligible expense:
Generally, these cover regular 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).”
The RRF program guide provides more comprehensive information about the details of eligible expenses that should be reviewed if there is any confusion. Importantly, this section of the guide also explicitly defines what is not considered an eligible expense, like payments to independent contractors.
Generally, businesses that serve food or alcohol are eligible. Specifically, these businesses are expected to typically receive most of their revenue through in-person services to the public. To satisfy this requirement, small business owners need to meet one of the following criteria:
Here’s a full list from the SBA of the types of food businesses that would be eligible to apply:
Importantly, eligible entities can also be non-standalone businesses like those located within an airport terminal, hotel, conference center, or similar situation.
The SBA also gives considerable time to describing the legal criteria to be considered an eligible applicant. For example, businesses must be organized as either a C corporation, S corporation, partnership, limited liability company (LLC), sole proprietorship, independent contractors, or be a tribal business. The business must also either be open, temporarily closed, or be planning to open. This article from Cohn Reznick, an accounting firm, does an excellent job of laying out these types of requirements in plain language.
The SBA got to work relatively quickly since the program opened on May 3rd. By May 10th, over 16,000 applications had been approved and granted a total of over $2 billion in relief. Business owners began to see allocated funds in their commercial accounts on May 11th.
By May 12th, the SBA was reporting that the RRF had received over 147,000 applications had been received from priority groups (to be discussed later), and that the program was already oversubscribed at $29 billion (out of an available $28.6 billion). They also reported that efforts to target the smallest restaurants and underserved communities were successful.
Business owners, however, reported that the systems used to process applications were sometimes slow and they felt that reaching support was very time-consuming. Additionally, a few of the restaurant owners we spoke to stated concerns that they would be unable to receive funds due both to higher-than-expected demand and not being in the prioritized groups.
Overall, despite some of the usual hiccups of quickly launched government programs, it has been relatively easy for the SBA’s target populations of food business owners to prepare and submit applications as well as seamlessly receive funds that are approved.
Before we describe the application process, it’s important to address one aspect of the government’s distribution plan for the RRF. While all applicants can currently apply, for the first three weeks of the program the SBA will prioritize applications from small “businesses owned and controlled by women, veterans, and social and economically disadvantaged individuals”. After those 21 days, applications will be prioritized in the order in which they were received.
It also sets aside large chunks of funding based on an applicant’s size. $5 billion for those at or below $500,000 of 2019 gross receipts, $4 billion for those at or between $500,001 and $1,500,00 of 2019 gross receipts, and $500 million for those with no more than $50,000 of 2019 gross receipts. These earmarks mean that despite over subscription, there are plenty of funds left for those businesses that fall in those size ranges.
Small business owners who have met eligibility can apply in one of three ways:
The SBA has a number of resources available to help with any form of application:
The SBA has a number of developed partnerships with technology companies that provide the physical and digital infrastructure necessary for the restaurant industry in order to expedite and ensure equitable distribution of funds.
In the SBA’s RRF documents, they are referred to as the SBA’s Point-of-sale (POS) Restaurant Partners. These companies include Square, Toast, Clover, NCR Corporation (Aloha), and Oracle. These companies have set up capabilities for restaurant customers to calculate, validate, and make and submit applications. If you use one of these companies, the SBA strongly suggests applying through them.
Applications can be made directly through the SBA, but they require a lot of manual calculation of award amounts and more documentation. There are step-by-step instructions in the RRF Program guide, so we won’t go over them here.
However, it’s important to be prepared with the required documentation, which applies to all applicants:
Applicants that are a brewpub, tasting room, taproom, brewery, winery, distillery, bakery, or and Inn will require documentation that verifies that at least 33% of sales happened onsite. This could be a 2019 Tax and Trade Bureau forms field or internally created reports.
All of the above steps, in this method, will be done over the phone with the help of an SBA support agent. Due to high demand for funds, this method is likely the slowest way to apply for RRF funds.
We don’t recommend it.
