In May 2021, the Restaurant Revitalization Fund (RRF) launched with $28.6 billion allocated by Congress to provide funding to a sector of the economy especially hard-hit by government-imposed shutdowns and other restrictions related to the COVID-19 pandemic.
The funds supplied fell far short of the demand. While the program’s administrator, the U.S. Small Business Administration, awarded more than 100,000 RRF grants totaling $28.6 billion, the program received nearly 280,000 RRF applications seeking more than $72 billion in funding.
The following summary reviews the RRF’s history, and eligibility and application requirements, and also looks at potential accounting and auditing developments.
A Brief History of the RRF
On March 11, 2021, the American Rescue Plan Act (ARPA) became law and established a variety of relief programs. Among those was the RRF, which ARPA provided with $28.6 billion administered by the SBA’s Office of Disaster Assistance and provided to restaurants, bars and other providers of food and drink.
Eligible applicants could qualify to receive a tax-free federal grant equal to the amount of their pandemic-related revenue loss, calculated by subtracting 2020 gross receipts from 2019 gross receipts. The grant amount was reduced by any Paycheck Protection Program (PPP) loans the applicant received. The maximum amount available for a single grant award was $5 million per physical location, capped at $10 million per entity and affiliates, with a minimum award of $1,000 per entity.
The application portal opened for registration on April 30, began accepting applications on May 3 and stopped accepting applications on May 24.
Hundreds of thousands of applications were sent to the U.S. Small Business Administration (SBA), which oversaw the RRF. Less than 10 days after the program launched, the SBA reported that it had received requests for more than twice the $28.6 billion Congress provided for grants.
At the time, the program appeared on course to provide the vast majority of its funding to eligible businesses owned by women, veterans, and socially and economically disadvantaged individuals. The American Rescue Plan Act mandated that those businesses, which submitted 147,000 applications totaling $29 billion in the program’s opening days, receive priority review for the program’s first 21 days.
The priority policy was challenged by lawsuits alleging that the policy discriminated against white men. Several judges ruled in favor of those claims, leading the SBA to stop processing applications from members of prioritized groups and to rescind some approvals already made.
In the final accounting, restaurants and other eligible businesses owned by members of prioritized groups received about $18 billion in grants, with the remainder of the $28.6 billion awarded to eligible applicants not identified as part of an underserved group, according to the SBA.
Funding and eligibility for RRF Grants
Eligible entities for the RRF were those that were not permanently closed where the public or patrons assemble for the primary purpose of being served food or drink. These include:
Restaurants
Food stands, food trucks, and food cartsCaterers
Bars, saloons, lounges, and taverns
Snack and nonalcoholic beverage bars
Bakeries [1]
Brewpubs, tasting rooms, and taprooms [1]
Breweries and/or microbreweries [1]
Wineries and distilleries [1]
Inns [2]
Licensed facility or remise of a beverage alcohol producer where the public may taste, sample, or purchase products
Other similar place business in which the public or patrons assemble for the primary purpose of being served food or drink
[1]Onsite sales to the public must comprise at 33% of gross receipts
[2]Onsite sales of food and beverage to the public must comprise 33% of gross receipts
State or local government-operated businesses, non-profit organizations, entities that own or operate more than 20 locations as of March 13, 2020, publicly traded entities, and entities that have permanently closed are not eligible for the RRF grant.
Franchisees, even of a company that is publicly traded, are eligible for an RRF grant provided they own or operate fewer than 20 locations.
The SBA has further explained how to count locations and affiliated entities in the RRF Knowledge Base.
Calculation of Grant Amount
To determine the funding amount, there were three calculations depending on when
the applicant began operations:
Calculation 1 (for applicants in operation prior to or on January 1, 2019):
2019 gross receipts — 2020 gross receipts — any PPP loan amounts
Calculation 2 (for applicants that began operation after January 1, 2019):
(Average 2019 monthly gross receipts x 12) — 2020 gross receipts — any PPP loan amounts
Calculation 3 (for applicants that began operations between January 1, 2020-March
10, 2021 AND applicants who have not yet opened but have incurred eligible expenses):
Amount spent on eligible expenses between February 15, 2020 and March 11,2021 — 2020 and 2021 Gross Receipts (through Mar.11, 2021) — any PPP loan amounts
Note: Entities who began operations partially through 2019 may elect (at their own
discretion) to use either calculation 2 or calculation 3.
Covered period
Eligible expenses, defined later in this article, were those incurred from February 15, 2020 to March 11, 2023. If the business permanently closes, the covered period will end when the business permanently closes or on March 11, 2023, whichever occurs sooner. If the business did not spend all grant funds, or if the business permanently closed before the end of the covered period, the business was required to return unused funds to Treasury. The process for reporting the use of funds has not been defined by the SBA.
Interaction with PPP Loans and other grant programs
Pandemic-related revenue losses for business are reduced by any amounts received from Paycheck Protection Program (PPP) First Draw and Second Draw loans in 2020 and/or 2021.
o Upon applying for RRF, the applicant must withdraw any outstanding PPP applicationIf an entity applies for a Shuttered Venue Operator Grant, they cannot also apply for a RRF grant.
Any Restaurant Revitalization Grant funds used for payroll cannot be considered qualified wages for calculating the Employee Retention Tax Credit.
The SBA has provided a summary of Cross-program eligibility on SBA COVID-19 relief options.
Gross receipts defined
For the purposes of RRF, “gross receipts” includes all revenue received or accrued, such as sales of products or services, interest, dividends, rents, royalties, fees, or commissions, and is reduced by returns and allowances. It does not include:
Amounts received from Paycheck Protection Program (PPP) loans (First Draw or Second Draw received in 2020 and/or 2021)
SBA Section 1112 payments
Amounts received from Economic Injury Disaster Loans (EIDL). EIDL Advance, Targeted EIDL Advance, or any other grant funds received via the CARE act
State and local business grants
Randolph-Sheppard Act Financial Relief and Restoration Payments (FRRP) Appropriation
Accounting considerations
Awarded funds may be used for specific expenses, including:
Business payroll costs, including sick leave and costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
Payments on any business mortgage obligation (both principal and interest; this does not include any prepayment of principal on a mortgage obligation);
Business rent payments, including rent under a lease agreement (this does not include any prepayment of rent);
Business debt service (both principal and interest; this does not include any prepayment of principal or interest);
Business utility payments for the distribution of electricity, gas, water, telephone, or internet access, or any other utility that is used in the ordinary course of business for which service began before March 11, 2021.
Business maintenance expenses including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment;
Construction of outdoor seating;
Business supplies, including protective equipment and cleaning materials;
Business food and beverage expenses, including raw materials for beer, wine, or spirits;
Covered supplier costs, which is an expenditure made by the eligible entity to a supplier of goods for the supply of goods that
o Are essential to the operations of the entity at the time at which the expenditure is made; and
o Is made pursuant to a contract, order, or purchase order in effect at any time before the receipt of Restaurant Revitalization funds; or
o With respect to perishable goods, a contract, order, or purchase order in effect before or at any time during the covered period;Business operating expenses, which is defined as business expenses incurred through normal business operations that are necessary and mandatory for the business (e.g. rent, equipment, supplies, inventory, accounting, training, legal, marketing, insurance, licenses, fees). Business operating expenses do not include expenses that occur outside of a company’s day-to-day activities.
Past-due expenses are eligible if they were incurred beginning on February 15, 2020 and ending on March 11, 2023.
Note: The SBA will require a Use of Funds Assessment after the total awarded funds have been used, as well as self-reported fund usage through 2023. The SBA will provide additional guidance outlining the reporting requirements and procedures in the coming weeks.
To assist grant recipients in tracking fund usage, the AICPA, in partnership with the National Restaurant Association, has created a RRF Budget Tracker Tool. The AICPA will continue to monitor the program requirements and provide guidance regarding the proper accounting treatment for these grants if deemed necessary.
The AICPA recently issued nonauthoritative guidance about how a recipient should account for a grant under this program. This Technical Question and Answer (TQA) applies all entities eligible for the program.
Potential audit implications and considerations
RRF recipients will not be required to have a Single Audit. An audited financial statement is not required to apply for a RRF grant.
The AICPA will continue to monitor the program requirements and will provide additional information regarding potential auditing implications and considerations as necessary.