The American Rescue Plan Act (“the Act”) was passed by the Senate on March 6, 2021, and is now headed for ratification by the House of Representatives and signature by President Biden. The $1.9 trillion stimulus includes over $25 billion earmarked as direct aid to restaurants.

Restaurant Revitalization Fund

Section 6003 of the Act establishes a Restaurant Revitalization Fund, to be administered by the Administrator of the Small Business Administration. The Restaurant Revitalization Fund includes $25 billion earmarked for restaurant Revitalization Grants. The Act provides that $5 billion of this total amount should be earmarked for restaurants with gross revenue of $500,000 or less. The remaining $20 billion is available for the SBA to administer “in an equitable manner to eligible entities of different sizes based on annual gross receipts.” 

Entities Eligible for Grant Funding

Under the Act, entities eligible to receive Restaurant Revitalization Fund grants include restaurants, bars, tasting rooms, tap rooms, food trucks and other businesses with the primary purpose of serving the public food and drink.

Some businesses are specifically excluded, including entities with more than 20 locations, state and local government-operated businesses, and entities located in airport terminals. Entities that previously received aid under the small businesses, nonprofits and venues act are also not eligible for grant funding.

Eligible Expenses

Restaurant Revitalization Grants must be used for expenses within the covered period, from February 15, 2020 to December 31, 2021. The SBA Administrator may extend the covered period.

The Act specifies that eligible expenses for restaurants to use Restaurant Revitalization Grants Funds for include:

• Payroll costs (excluding employee compensation exceeding $100,000/year)
• Paid sick leave
• Mortgage, rent and utilities
• Maintenance (including outdoor seating construction)
• Supplies, protective equipment and cleaning materials
• Food and beverage expenses within the scope of the normal business practice of the entity
• Operational expenses
• Covered supplier costs

The SBA Administrator may modify this list of eligible expenses, as we have seen with PPP Loans.

Calculation of Grant Amounts

The eligibility amount will be determined based on pandemic-related revenue loss.  Pandemic-related revenue loss is calculated by taking the entity’s 2019 revenues and subtracting 2020 revenues. 

If an eligible entity was not in operation for the entirety of 2019, pandemic-related revenue is calculated by taking the sum obtained by multiplying the average monthly gross receipts of the eligible entity in 2019 by 12 and subtracting the sum obtained by multiplying the average monthly gross receipts of the eligible entity in 2020 by 12.

If an eligible entity opened after January 1, 2020, the pandemic-related revenue loss would be the eligible expenses incurred by the entity minus gross receipts received. The SBA administrator may also create a new formula for grant relief to these businesses.

The maximum grant amount under the Act is $10 million for an eligible entity and any affiliated businesses (normally a restaurant group). A maximum of $5 million will be awarded per physical location of an eligible entity.

Prioritization of Grants

Once grant applications are open, the Act provides for a 21-day period to prioritize grants to eligible entities that are: small businesses owned and controlled by women, small businesses owned and controlled by veterans, or socially and economically disadvantaged small business concerns. These applications will require a self-certification of eligibility for priority.

Tax Treatment of Restaurant Revitalization Grants

Section 9673 of the Act addresses the tax treatment of Restaurant Revitalization Grants.  The Act provides that grant amounts “shall not be included in the gross income of the person that receives such amounts.”