The U.S. Small Business Administration (SBA) is awarding funding through the Restaurant Revitalization Program to restaurants, bars, and other similar places of business. The purpose of this funding is to provide support to eligible entities that suffered revenue losses related to the COVID-19 pandemic.
For purposes of determining the grant amount, an eligible applicant will subtract their 2020 gross receipts (as reported or to be reported on the entity's 2020 federal tax return) from the 2019 gross receipts (reported on the 2019 federal tax return). The decline in gross receipts is then offset by any First or Second Draw Paycheck Protection loans. In a simplistic example, if a restaurant’s gross receipts decline by $800,000, and the First and Second Draw PPP amounts received were $350,000, then a Restaurant Revitalization grant of $450,000 may be available. It is important to note that the Employee Retention Credit does not offset the Restaurant Revitalization funding amount.
Here are the top six things those in the lodging industry should consider regarding the Restaurant Revitalization Program:
1. Am I eligible for the Restaurant Revitalization Program if I operate a restaurant or catering business in my hotel, motel, or inn?
While we would all hope for a concise and clear answer, the guidance issued by the SBA is foggy. The most recent guidance updated on April 28 lists inns as eligible for the program if they can provide documentation with their application that on-site sales of food and beverage to the public comprised at least 33 percent of gross receipts in 2019.
In addition, the guidance goes on to state that eligible entities include any entities that operate independently (has its own tax identification number) inside another business, specifically including a restaurant that operates independently inside a hotel or conference center.
Based on this guidance, if an inn can document that 2019 gross receipts included on-site sales of food and beverage to the public of at least 33 percent, the inn will qualify as an eligible entity. Also, if a hotel or conference center has a restaurant or catering business that has its own tax identification number, it is also deemed an eligible entity.
However, the confusion rises when reviewing the SBA’s Restaurant Revitalization Fund Knowledge Base Program Questions. The SBA specifically notes that hotels and motels are not considered “inns” for the purpose of the program. This has led many hotels, who have not registered their on-site restaurant or catering business under a separate tax identification number, to question whether they are eligible for the program. This has caused extreme frustration, as the definition of an inn versus a hotel is mainly a marketing decision and is not directly correlated to legal definitions in many states.
2. If we anticipate our entity demonstrates that on-site sales of food and beverage to the public comprised at least 33 percent of gross receipts in 2019, what gross receipts do we utilize?
When you are qualifying for the funding on the basis that your operation's gross receipts are at least 33 percent on-site sales to the public, you must calculate your award using all the gross receipts from your operation.
For example, if an inn has at least 33 percent of gross receipts in 2019 consisting of on-site sales to the public, the gross receipts of on-site sales to the public were $100,000, and the total gross receipts of the business were $200,000, then the inn would calculate its award using $200,000 for its 2019 gross receipts.
If the same inn’s 2020 gross receipts were $250,000 with on-site sales to the public consisting of $90,000, the inn would calculate its award using $250,000 as its 2020 gross receipts.
Although on-site sales to the public declined in 2020, the inn’s overall gross receipts increased, which means the inn is not eligible for an award.
3. What if we operate separate locations under one tax identification number? How would we apply?
This example may be seen through multiple single-member LLC’s rolling up under one partnership or individual. The operations amongst these businesses are at separate physical locations and one may be a restaurant, another a hotel, and another a dry-cleaning business.
The SBA’s Restaurant Revitalization Fund Knowledge Base Program Questions require an applicant with multiple eligible locations under the same EIN to apply for all locations in one single application. However, their guidance specifically requires that the application should not include gross receipts from a location that is not operating as an eligible business type. For our example, if you own a dry cleaner, hotel, and a restaurant under the same tax identification number, only the gross receipts from the restaurant should be included.
4. Isn’t there a priority in awarding the Restaurant Revitalization Funding?
Yes. For the first 21 days, the SBA will prioritize awarding funds to small businesses if at least 51 percent is owned and controlled by individuals who are women, veterans, and/or socially and economically disadvantaged individuals. Applicants must self-certify on the application that they meet these requirements.
The SBA’s Restaurant Revitalization Fund Knowledge Base Program Questions specifically state that an applicant may not re-organize ownership on or after March 11, 2021, for the purpose of qualification for the priority period. Such re-organization will result in automatic disqualification of the award.
5. If I am not one of the groups for priority in the first 21-days, should I wait to apply?
No. Apply as soon as possible. The SBA will accept applications from all eligible applicants and distribute funds in the order in which applications are approved by SBA, so don’t wait to apply. The SBA reasoning of first in first out could impact an eligible entity’s access to the $28,600,000,000 appropriated for funding after the 21-day period has expired.
6. How do I apply?
You can apply through SBA-recognized Point of Sale (POS) vendors or directly via the SBA in a forthcoming online application portal. Participating POS providers include Square, Toast, Clover, NCR Corporation (Aloha), and Oracle. If you are working with Square or Toast, you do not need to register beforehand on the application portal. Registration with SAM.gov is not required. DUNS or CAGE identifiers are also not required. A great way to prepare for the application is to view this sample form.
To learn more about the general Restaurant Revitalization Funding Program, including the amount of funding that can be received, as well as how the funding can be utilized, click on the following link: Restaurant Revitalization Grant Program: Five Items Applicants Need To Know.
For more help regarding the Restaurant Revitalization Fund Program, contact our experts today.
The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.