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Federal program to provide tax-free grants to restaurant and bar owners, including landlords

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Although much attention has been paid to the $1,400 stimulus checks provided by the American Rescue Plan Act of 2021, there are many provisions of the law beneficial to business owners in Westchester and Fairfield counties.

Section 5003 of the act allocates $28.6 billion to establish a Restaurant Revitalization Fund administered by the Small Business Administration (SBA).

Under the program, restaurants, bars and other food and beverage-related businesses can apply for tax-free grants in an amount equal to what they lost during the pandemic.

The basic formula is simple: Start with what you earned in 2019, subtract what you earned in 2020, subtract what you received in Payroll Protection Program grants and receive a tax-free grant for the difference.

For example, if your business had gross revenues of $1.2 million in 2019, gross revenues of $500,000 in 2020 and received PPP grants totaling $450,000, your establishment would be eligible to receive a tax-free grant of $250,000.

The act also contains provisions allowing entities that were not in operation for the entire 2019 calendar year or that opened in 2020 to apply, pursuant to a different formula.

Before you stop cooking to rush to the SBA website to apply, please note that the program may not be accepting applications until sometime in April, the exact date of which is still unclear. In addition, make sure you can sign an application under penalty of perjury that the funds are reasonably necessary to support the ongoing operation of the business.

 

Is my restaurant or bar an “eligible entity”?
The act provides a broad definition of what is an “eligible entity” to receive a grant from the restaurant fund. Examples set forth in the legislation include:

  • restaurants
  • food stands and food trucks
  • caterers
  • inns
  • bars
  • bakeries
  • breweries and brew pubs
  • wineries and distilleries
  • places of business in which the public or patrons assemble for the primary purpose of being served food or drink

Specifically excluded are entities that are operated or owned by state or local governments, businesses that own or operate more than 20 locations and publicly traded companies – but not franchisees of publicly traded companies.

If addition to qualifying as an eligible entity, a business must show that it suffered a pandemic-related loss. The test for such a loss is relatively simple.  An applicant must show that it had fewer gross receipts in 2020 than they did in 2019, after including PPP loan proceeds received in 2020 and possibly 2021 as “revenue” for purposes of this calculation.

While it is easy to have a pandemic-related loss under this provision, the law does require a good-faith showing that the receipt of a Restaurant Revitalization Fund grant is necessary to continue business operations in the current uncertain economic times.

 

How much can an eligible entity receive?
The statute provides that an eligible entity may receive an amount equal to the suffered pandemic loss, not to exceed $10 million for each eligible entity or $5 million per physical business location.

 

What can restaurant revitalization funds be used for?
Restaurant revitalization money can be used for the following expenses:

  • Payroll
  • Principal or interest on any mortgage obligation, but not prepayment of principal
  • Rent payments, but not prepayment of rent
  • Utilities
  • Maintenance expenses, including construction to accommodate outdoor seating and walls, floors, deck surfaces, furniture, fixtures and equipment
  • Supplies, including protective equipment and cleaning materials
  • Food and beverage expenses
  • Operational expenses
  • Paid sick leave

Property owners and landlords should take note of the fact that funds may be used to pay rent. Restaurant owners should note that the funds can be used for construction to accommodate outdoor dining.

 

How long do I have to use my funds?
Funds allocated under the program must be spent by Dec. 31, 2021. Any unused funds must be returned on that date. However, the statute does provide the SBA  with the authority to extend this period until March 11, 2023.

 

Are there any priorities?
The law requires the SBA to prioritize entities owned by women or veterans and businesses that are socially and economically disadvantaged. That statute provides that such entities shall be granted priority access to the program for the first 21 days.  The law also provides a specific set-aside of $5 billion for eligible entities with 2019 gross receipts of less than $500,000.

 

When does the program start?
On March 24, 2021, the SBA announced that the restaurant fund would be operational within 30 days.

We will provide an update to WBJ readers when the SBA releases regulations and applications for the program.

 

Jeffrey D. Buss is a founding member of the firm Smith, Buss & Jacobs LLP. He is in charge of the firm’s Litigation Department.
Smith Buss & Jacobs LLP, founded in 1991, is an AV-rated, 22-lawyer firm that represents clients in the areas of corporate law, real estate law, commercial trials, federal and state appeals, renewable energy, intellectual property and cooperative and condominium law.
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