CEO Marbet Lewis Speaks to Full Service Restaurant Magazine on "The Restaurant Revitalization Fund is Off to a Busy Start"

CEO Marbet Lewis Speaks to Full Service Restaurant Magazine on

May 4, 2021

APPLY AS SOON AS POSSIBLE, THE NATIONAL RESTAURANT ASSOCIATION CAUTIONS.

The $28.6 billion Restaurant Revitalization Fund opened to a hive of activity. Within the first hour of pre-registration, more than 41,000 people joined in, according to SBA Administrator Isabella Casillas Guzman and Associate SBA Administrator Patrick Kelley.

Sean Kennedy, the National Restaurant Association’s EVP of public affairs, sent a letter to restaurant operators cautioning, “the total number of applicants is going to exceed expectations—and may quickly exhaust the $28.6 billion in federal funding.”

“The National Restaurant Association is already meeting with lawmakers to identify how best to provide additional funding for the RRF, allowing the program to provide more relief to struggling restaurants of every type,” he added.

In a release Monday, Association CEO Tom Bené echoed the concern. “The question on the minds of many is what happens when applications outpace the available funds,” he said in a statement. “Restaurants are operating in an uncertain environment, with continued needs to restore customer confidence in their safety and to bring workers back into the economy."

Between March 2020 and April 2020, restaurant and foodservice sales were down $280 billion from expected levels. And according to Association estimates, some 110,000 restaurants closed permanently or long-term.

So the message is clear—as welcomed as the $28.6 billion program is, it’s likely not going to be enough.

Because funds are limited, the Association encouraged all eligible applicants to apply as soon as possible, it said Monday. While priority groups will have 21 days of front-of-the-line access, applications from all eligible applicants will not be ruled ineligible if they apply during the prioritization period, which is a key thing to consider and probably why 41,000 people applied last week. The SBA will coordinate the time of submission to determine the order of grant distribution.

Before breaking down the RRF further, here are some vital resources to file away:

Resources for operators:

FSR caught up with Marbet Lewis, founding partner and CEO Spiritus Law, to discuss the RRF and how it could help operators get back on their feet.

What are some differences between the program and others before it, especially the PPP, restaurants should be aware of?

President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) on March 11, 2021.  Unlike prior grant programs like the PPP, the ARPA includes a specific $28.6 billion fund named the Restaurant Revitalization Grant Program (“RRF”) designated for the revitalization of restaurants and bars. The Small Business Administration (“SBA”) is tasked with administering the RRG and issuing grants to qualifying business owners equal to their pandemic related losses rather than payroll averages.  The fund grants will be equal to a business’s pandemic related losses up to $10 million per business (including affiliates) and no more than $5 million per physical location.  An “affiliated business” is also defined in the RRF so the prior definition established by the SAB found at 13 C.F.R. 121.301 does not apply for purposes of this grant. Under the RRG, an “affiliate business” is a business that an eligible entity has an equity or right to profit distributions of at least 50 percent or has the authority to control the direction of the business since before March 13, 2020. Recipients will not need to repay the grants as long as the funds are used for eligible uses as listed in the program guide. The application period opened on Monday, May 3, 2021 at noon EDT. Pre-registration at www.restaurants.sba.gov is required. 

In speaking to operators, there remains a good deal of questions. One being the “affiliated business” language in the eligibility section. From your understanding, how can this be explained in simpler terms? In other words, who isn’t eligible under this section? 

“Eligible entities” includes restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drinks. Businesses located within an airport terminal and Tribally owned businesses are also included. Franchisees may also be eligible but must submit additional documentation. Bakeries, breweries, brewpubs, distilleries, microbreweries, taprooms, tasting rooms and wineries must provide documentation showing that onsite sales to the public comprise at least 33 percent of gross revenue for each of the years included in the grant funding calculation. 

Additionally, a business must show it has suffered a pandemic-related loss. The tricky issue here is that while a business only needs to show it suffered a loss in revenue in 2020 as compared to 2019, PPP funds that were previously given are considered for revenue purposes. Eligible entities that were not in operation for all of 2019 or first opened in 2020 may still be eligible as well if they can show loss in 2020.

The RRF also lists businesses that are not eligible. This includes:

  • Businesses that own or operate more than 20 locations (together with any affiliated business), regardless or whether those locations do business under the same name or multiple names.  Again, in simpler terms, a business is an “affiliated business” if the eligible applicant entity has an equity or right to profit distributions of at least 50 percent from that affiliated business or if the eligible applicant entity has the authority to control the direction of the affiliated business since before March 13, 2020;
  • Businesses that have received a Shuttered Venues Operation Grant or have an application in process;
  • The entity is publicly traded or controlled by a publicly traded company;
  • Businesses that do not have valid business tax identification numbers;
  • Any entity that is a state or local government-owned or operated business;
  • Businesses that are permanently closed;
  • Non-profit entities;
  • Entities that have filed for Chapter 7 bankruptcy or are liquidating under Chapter 11;
  • The entity has filed for bankruptcy under Chapter 11, 12 or 13 but do not have an approved reorganization plan.

What are some of the top questions you’ve received so far from restaurants? 

Most of the primary questions revolve around eligibility and required documentation for application submission. 

Expanding on eligibility, what are the key things operators need to understand? 

Operators need to understand that a lot of the loopholes that made abuses possible during the first round of PPP aid have now been closed and the SBA will be examining eligibility and evidentiary documentation more closely. 

When restaurants begin to prepare their applications, where should they start? 

First start by gather financial documentation such as business tax returns for 2019 and 2020, bank statement for the same time period, financial statements such as Income Statements or Profit and Loss Statements for the same time period, point of sale reports including IRS Form 1099-K, organizational documents like Article of Incorporation or Operating Agreements and any documentation relating to prior grants and PPP funds. Businesses must also pre-register at https://restaurants.sba.gov/requests/borrower/login/?next=/.

Do you foresee the fund being replenished in the future?

That’s a question I get all the time lately. I think this will continue to depend on industry needs and re-opening efforts. Should social distancing mandates continue for any extended period of time, the industry will continue to suffer huge losses not just in profit but to its workforce. So, additional assistance may be needed especially in states that are experiencing greater economic hardships and longer closure periods. So, we may see additional funding for business with eligibility more limited to geographic regions. 

The other might be: Will independents and small restaurants get their fair shake this time? What would you say to those concerned they’ll be left in the dark? 

Unfortunately, the fund is not sufficient to reach all struggling businesses. Businesses should apply early and be sure to apply correctly utilizing only approved forms and documentation. The RRF does contain more industry specific eligibility criteria that was not included in prior grant programs including affirmation from the applicant business that the grant is necessary to support the ongoing operation of the business.  So, there is a better and more efficient screening process this time around. Additionally, the RRF contains a unique provision that prioritizes specified small businesses. For example, business entities that can certify that they meet the definition of a woman-owned, veteran-owned, or socially and economically disadvantaged small business will be given priority for award if their application is filed within the first 21 days of the open application period. The SBA will accept applications from all eligible applicants during this time, but will only distribute funds to approved applications that meet the eligibility requirements for priority ownership. In addition, $5 billion is set aside for applicants with 2019 gross receipts of up to $500,000, and an additional $4 billion is set aside for applicants with 2019 gross receipts from $500,001 to $1,500,000. An additional $500 million is set aside for applicants with 2019 gross receipts of up to $50,000.

Talk about how the RRF could solve some main problems today for restaurants? 

The RRF specifically targets some of the main hardships restaurants have faced such as making payroll and making lease payments. Specifically, the RRF allows the use of funds for the following:

  • Payroll costs.
  • Payments of principal or interest on any mortgage obligation (which shall not include any prepayment of principal on a mortgage obligation).
  • Rent payments, including rent under a lease agreement (which shall not include any 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 that are within the scope of the normal business practice of the eligible entity before the covered period.
  • Covered supplier costs, as defined in section 7A(a) of the Small Business Act (as redesignated, transferred, and amended by section 304(b) of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Public Law 116–260).
  • Operational expenses.
  • Paid sick leave.
  • Any other expenses that the Administrator determines to be essential to maintaining the eligible entity.

Businesses also have a longer period of time in which to use grant funds that previously offered by the PPP program. Businesses officially have until December 31, 2021 to exhaust grant funds but the SBA may extend that period. 

Just broadly speaking, where do you think the industry is headed from here? Is a golden era coming? Will more rationalization occur as debt comes due? Perhaps a little of both?

I think it will definitely be a little of both. Investors may be more cautious with the hospitality industry for now but we are seeing a lot of innovation in food service and new doors opening with the expansion of online sales and delivery options including cocktails-to-go privileges which are spreading throughout the U.S. So, there is new opportunity for growth and business owners, especially small business owners, have had a crash course in responsible financial planning.  All of these factors, when taken together, present a much brighter forecast for the industry. Cheers to that!

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About Spiritus Law:

Spiritus Law is an entrepreneurial regulatory and business law firm focused on the representation of highly regulated industries by offering legal services in the areas of alcohol and tobacco law, federal, state and local regulatory and business licensing, hospitality law and licensing, commercial and residential real estate development, land use and zoning, real estate transactions, government relations, banking and lending, general commercial retail including the retail sale of regulated products and public/private partnership transactions. The Firm is founded on traditional principles of client counseling and teamwork with a cutting-edge twist on regulatory innovation and modern problem-solving. Spiritus Law combines a unique blend of professionals, including attorneys, government consultants, licensing assistants and paralegals to assist its diverse clients. Our modern approach to transparent client representation and employee engagement defines our collaborative spirit and progressive energy.

Core Services:

Primary service areas include: Alcohol Licensing & Regulatory Compliance, Retail & Hospitality Licensing & Permitting, Real Estate Transactions & Commercial Development, Firearms & Security Compliance, Public/Private Infrastructure &Development, Tobacco Product Regulatory Compliance, and Business Transactions & Financial Services. Our firm services an array of highly regulated industries, including alcohol producers, sports teams, hotels, restaurants, theme parks, movie theaters, grocery stores, liquor stores, bars, residential and commercial real estate developers, state agencies, municipal governments, investment firms and individual investors, lending institutions, security service providers, firearms suppliers and more.