Accountants help restaurants apply for new SBA grants
The SBA plans to open the application window for the Restaurant Revitalization Fund at noon EDT on Monday. Registration for the program opened on Friday morning. The $28.6 billion fund is part of the American Rescue Plan Act that President Biden signed into law in March. It provides direct relief to restaurants and other hard-hit food establishments that have suffered economic distress and losses due to the COVID-19 pandemic. The program will give restaurants funding equal to their pandemic-related revenue loss of up to $10 million per business, but no more than $5 million per physical location. The funds have to be used for allowable expenses by March 11, 2023. The initial 21-day period is supposed to focus on providing grants to businesses owned by women, veterans and socially and economically disadvantaged businesses. But as with other SBA pandemic-related programs like the Paycheck Protection Program, Economic Injury Disaster Loans and the Shuttered Venue Operators Grants, there are likely to be some missteps and surprises that accounting firms and their clients will encounter.
The program doesn’t only apply to restaurants — the definition of eligible entities that may qualify for the grants also includes food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brew pubs, tasting rooms, taprooms and more.
“The biggest issue we’ve been hearing today is from our hospitality and hotel clients,” said Mucenski-Keck. “In the SBA guidelines, they clearly say that if you can prove that 33 percent of your gross receipts are related to dining and beverages, that you qualify for the RRF. But then it goes one step further on the FAQs from the SBA and says hotels don’t qualify as inns. A lot of our hotels are sitting there and not really understanding it because legally, from their perspective, it's just marketing of whether they're called a hotel or an inn. They’re pretty frustrated.”
The general amount of the RRF grants is equal to 2020 gross revenue minus 2019 gross revenue, minus any adjustments for first- and second-draw Paychex Protection Program loans received. There are significant differences in terms of the timing of when the RRF grants must be used, the eligibility and the actual grant amount compared to PPP funding. Eligible entities may be pleasantly surprised when looking at the relative flexibility of the grant restrictions. A big plus for businesses who receive the grant is the fact that it won’t be considered taxable for federal income tax purposes. Instead, the expenses incurred will generally be allowed as deductions.
“There was a question of, if I own multiple restaurants, how do I apply for the grant? Does each restaurant apply for the grant, or is it based on something else? The SBA did provide some guidelines that essentially said it’s based on how you file your tax return,” said Mucenski-Keck. “That sometimes puts some people at a better advantage than others because they're allowed to look at each of their restaurants separately, provided they're under a separate EIN as opposed to aggregated.”
The SBA may need to correct some of the guidance that’s being issued to restaurants about the program. “I think there is a potential error because the SBA right now is basing it off of your tax return, and we have had a handful of clients who file fiscal years,” said Mucenski-Keck. “The way this year falls, their bad year actually got reported on their 2019 tax return versus 2020. They're getting pushed out based on the way the guidance currently exists, so fiscal year taxpayers who are restaurants are not too happy right now.”
Clients can be confused about how to balance and apply for the various SBA programs like the first- and second-draw PPP loans, the Shuttered Venue Operators Grants, the new RRF, as well as the IRS’s Employee Retention Credit.
“We’re in New York State and they’re still in a full or partial shutdown now because they're not allowed to have 100 percent capacity," said Mucenski-Keck. "There are all sorts of questions. 'Do I have to back out the ERC when calculating my Restaurant Revitalization Fund grant?' I said, no, do not. You only have to back out your first and second draw. We have heard, surprisingly enough, a number of questions from clients who applied for the Shuttered Venue, and now they think they can apply for RRF and are struggling to know which one to apply for because it’s one or the other. That kind of surprised us. We didn’t think there would be a blending. We thought it would be more clear as to which one our clients would go after.”
The RRF program comes with some extra flexibility compared to some of the earlier programs. “With the RRF program, they're actually going to let you spend it all the way up through March 11, 2023,” said Mucenski-Keck. “In 2021, you can use your PPP funds. In 2022 and part of 2023, you can use your RRF or your grant. It's not only for, like what we saw with the PPP, for rent, payroll and utilities, but we also see it including maintenance on floors, furniture, fixtures, construction on outdoor seating, and food and beverage expenses, which are obviously quite important to restaurants. It’s much broader. The fact that you can spend it for a longer period of time, and you can spend it on a longer list of items above and beyond the PPP, should get them excited.”