A Good Understanding of the Restaurants Act

Within the new stimulus bill was provision known as the RESTAURANTS ACT. This has created the 28.6 billion dollar Restaurant Relief Fund (RRF) with the intention of helping restaurants weather the economic storm and make it through to the other side.

If you’re a restaurateur who has been watching the various stimulus programs help everyone but you and your colleagues, wait no more.

You’re probably already aware of the program, but this article focuses explaining who’s entitled to apply and how to go about it. If you’re a restauranteur, let’s find out if you’re eligible for any grants.

Where Do I Apply For RRF Grants?

As of the time I’m writing this (March 30, 2021), you can’t yet. The Small Business Administration website will be the place to get information when they post it. I highly recommend speaking with your accounting specialists, as well as checking the SBA website daily to ensure that you’re as close to the front of the line as you can be.

According to Patrick Kelley, an administrator at the SBA’s Office of Capital Access, the SBA is hard at work figuring out the best way to effectively and efficiently collect the mountain of financial information that untold numbers of businesses will offer up.

He believes the first information for applicants could be available online as soon as April 2nd.

Applying for grants is similar to going out to dinner, it’s a breeze before the rush hits, but if you show up mid-rush it’s going to be slow and there’s nothing you can do to change that. 

Keep reading though, I detail many aspects of the process that could save you time when you have the ability to start filling out forms.

Eligibility Rules

Types of Businesses

The following types of businesses are eligible:

  • Restaurant
  • Food stand
  • Food cart
  • Food truck caterer
  • Bar (saloon, inn, tavern, brewpub, taproom)
  • Tasting room
  • Lounge
  • Or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink

This is paraphrased directly from SEC. 5003 of the ARP. If you need further clarification, click that link, but the restrictions on who can apply are incredibly lenient.

If you can’t qualify by fitting any of those bulleted definitions, the last of which is essentially “if you serve food or drink,” you’re probably a different type of business and I’m sorry to be the one that has to break that to you. I’m sure there is a stimulus program to help you if its funds haven’t been exhausted already.

Economic Requirements

The process to qualify is simpler than other programs in recent months.

Above all requirements, you need to state on the record that this grant is vital to your ongoing business operations, whether it be an open or closed establishment.

In terms of actually calculating the amounts, there are four categories:

  1. Businesses open all of 2019 and prior – You simply subtract your 2020 gross receipts from your 2019 gross receipts.

  2. Business open for some of 2019 – If you weren’t open for all of 2019, you multiply the average monthly revenue of the months you were open by 12.

  3. Businesses opened in 2020 – If you didn’t open until 2020, and you have my sympathies if that was your misfortune, your grant will equal the sum total of all your expenses minus any revenue received.
  1. Businesses attempting to open when COVID hit – If you were in the process of opening, yet have not done so by the time of your grant application, your grant will cover any expenses incurred. 

Time Periods

The time period covered by the RRF spans from February 15, 2020 to December 31, 2021. As with almost all relief funds, it’s anyone’s guess if the money appropriated will last until the end of 2021.

Sean Kennedy, executive vice president of public affairs of the National Restaurant Association, said “I suspect that more is going to be needed” prior to the stimulus package even being passed.

Who Gets the Funds First?

Once the program officially begins, it would enter a pilot phase that serves two purposes:

  1. It will allow the SBA to figure out the mechanics of taking applications and issuing funds.
  2. It will allow applicants requesting the smallest amounts of money (under $500,000) to get their applications in before larger applicants push them out of the way.

Additionally, as outlined in the law creating the RRF, during the first 21 days of the grants, the SBA will prioritize applications of particularly deserving business owners. This distinction includes:

  • Women
  • Veterans
  • Socially and economically disadvantaged individuals

If you fall into any of these categories, I re-emphasize the importance of checking the SBA website on a daily basis, as you could be receiving funds before others are even able to apply for them.

Not doing so might have you kicking yourself later on down the road when the process gets overly-crowded or the funds of the RRF run out.

How Much Can I Get?

Per location, you can get up to $5 million. That’s not an inconsequential number by any stretch of the imagination. If you have more than one location or business, that’s fine, but the total amount you can receive cumulatively is $10 million.

For those that have multiple businesses or locations, remember, this is not a slush fund. You need to use the funds at the location to which they were distributed. This might mean that you need to do a little homework to decide how to distribute your grant requests across multiple businesses.

It would make little sense to request a huge amount for a business that is financially solvent while you have other businesses under your care that desperately need a cash infusion.

What Can I Use the Funds For?

Once it appears you’re eligible and will receive funds, it’s good to know what you can spend them on. Fortunately, the limits on what you can use the cash for are few and far between. Here is a complete list of all eligible uses:

  • Payroll costs.
  • Mortgage payments (no prepayments)
  • Rent (no prepayments)
  • Utilities
  • Maintenance (including upgrades to outdoor seating)
  • Supplies
  • Operational expenses
  • Paid sick leave (learn more about sick leave)

If you have something in mind that you feel is essential to the operation and continuation of your business but isn’t on that list, don’t worry. You can always make a request to the administrator handling your particular grant in which you will be able to explain why this particular action is necessary for you.

One thing to keep in mind, this money can’t be used past the end of the year, so if you have extra lying around, figure out a way to spend it.

Are There Any Restrictions?

First and foremost, you cannot be a government owned or operated business. I wasn’t aware the GOV was running many bars or restaurants, but I suppose Congress is just being thorough.

Second, the entity receiving the funds cannot own, operate, or be financially associated with more than 20 locations. To be clear, this is 20 of any type of food/drink business, not just 20 operating under the same name.

I imagine the purpose of this clause is to ensure that larger operators don’t scoop up all the funds that might otherwise help dozens of business owners in the same region.

Third, the business isn’t or won’t be receiving funds from the Save Our Stages Act.

Money taken from the PPP is okay, but you will be required to deduct that from the total grant amount you were initially awarded. As noted above, you can use these funds to pay sick leave or to retain employees, however, you won’t be able to claim the tax credits associated with those programs if you’re using funds from the RRF

Additionally, you cannot be a publicly traded company. Just in case any lawyers figured out how to create smaller shell corporations to allow their national businesses to apply for funds.

What Happens if I Misuse the Funds?

For pete’s sake, just don’t! The US government excels at a handful of things, and catching tax and financial crimes is one of them. By accepting a RRF grant you’re opening your doors for review at any time the government wishes to look at how you spent the money taxpayers have given you.

If you’re not clear by this point on what’s acceptable and what’s not, talk to your accountants and lawyers. The cost of an hour or two with them is absolutely nothing compared to what you’ll owe when the SBA determines they want their money back.

Yes, that’s right, if the SBA and RRF determine that you misused the funds, you’ll be required to pay them back.

I double and triple down on this point, there is no level of benefit you’ll get from pulling a fast one that is worth the risk of being told you owe MILLIONS OF DOLLARS to the US government.