On April 20, 2021, the SBA, the agency charged with administering the RRF Program, published to its website a program guide that sheds light on important aspects of the program. The SBA also published a draft grant application, SBA Form 3172. We discuss below the key details from these documents.
As set forth in the ARPA, eligible RRF grant recipients include businesses where patrons assemble for the primary purpose of being served food or drink, including:
- Restaurants, food stands, food trucks, food carts
- Bars, saloons, lounges, and taverns
- Licensed facilities or premises of a beverage alcohol producer where the public may taste, sample or purchase products
- Other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink
- Snack and nonalcoholic beverage bars
- Brewpubs, tasting rooms, taprooms
- Breweries and/or microbreweries
- Wineries and distilleries
The program guide now clarifies that:
- To be eligible for an RRF grant, bakeries, brewpubs, tasting rooms, taprooms, breweries, microbreweries, wineries, distilleries and inns must provide documentation that, in 2019, their “on-site sales” to the public comprised at least 33 percent of their total gross receipts in 2019. (Note: entities without additional documentation requirements, such as restaurants and bars, are presumed to have on-site sales to the public comprising at least 33 percent of their gross receipts in 2019.)
- The SBA defines “on-site sales” to include sales of food and/or beverages that were purchased to-go, were purchased online and picked up or were delivered directly to a consumer for use. The original business models of applicants that opened in 2020 or have not yet opened should have “contemplated” at least 33 percent of their gross receipts in on-site sales to the public.
- All applicants must attest to the statement that they are eligible to receive funding under the rules in effect at the time their application is submitted. Each subsidiary that independently meets the eligibility criteria will qualify for a grant.
- An applicant must have a valid Employer Identification Number (EIN), Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN).
- An applicant must be organized as a C-corporation, S-corporation, partnership, limited liability company, sole proprietor, self-employed individual, independent contractor or tribal business.
- Any businesses operated by state or local government do not qualify for an RRF grant.
- An applicant must be currently open, temporarily closed or opening soon, with expenses incurred as of March 11, 2021.
- An applicant must not have filed for bankruptcy or otherwise must be currently operating under an approved plan of reorganization under a Chapter 11, Chapter 12 or Chapter 13 bankruptcy. An entity that is permanently closed, filed a Chapter 7 bankruptcy, or filed a Chapter 11, 12, 13 bankruptcy but is not operating under an approved plan of reorganization, does not qualify for an RRF grant.
- Applicants are not required to register on SAM.gov, or to obtain a DUNS number or CAGE code.
- As of March 13, 2020, an applicant must have owned or operated (including any affiliated business) 20 or fewer locations, regardless of name or type of business of such locations. For a caterer or a single business with multiple food stands, trucks or carts, the physical location is where the business is headquartered, so a caterer will have only one location, and a business with one permanent structure and five food trucks will have only one location.
- Applicants for an RRF grant need not have applied for a Paycheck Protection Program (PPP) loan. Applicants that already received, or have a pending application for a PPP loan, are also eligible for an RRF grant. However, applicants must withdraw any outstanding PPP applications before applying for an RRF grant, and any PPP loan amounts received and not repaid will be deducted from the amount of an applicant’s RRF grant.
- An entity is not eligible for an RRF grant if it has a pending application for a Shuttered Venue Operators Grant (SVOG) or has received an SVOG grant. If an entity was denied an SVOG grant, it may be eligible for an RRF grant. We explain SVOG grants here.
- An applicant that has received an Economic Injury Disaster Loan (EIDL), EIDL Advance, or Targeted EIDL Advance remains eligible for an RRF grant.
- Any non-profit organization or publicly traded company, or any entity that is majority owned or controlled by a publicly traded company, is ineligible for a grant.
- An applicant operating under a franchise or similar agreement, which meets the Federal Trade Commission (FTC) definition of a franchise in 16 CFR 436, may only be eligible for an RRF grant if:
- the franchise is listed in the SBA Franchise Directory with a franchise identifier code; or
- in the case of franchises that are not listed in the Directory (including brands that previously have been denied listing in the Directory because of affiliation issues), the franchisor submits the Franchise Disclosure Document (or other agreement), and all other documents a franchisee is required to sign, to [email protected]
Calculation of Grant Amount
- The value of any RRF grant will be based on a calculation of the grantee’s “pandemic-related revenue loss.” The SBA has provided three possible calculations of this value, depending on the period during which the applicant has been in operation. Generally, this loss will be the difference between an applicant’s 2019 and 2020 gross receipts, further subtracting the value of any PPP loans received. There are alternative, prorated calculations for businesses that were not in operation for all of 2019. These calculations are set forth in SBA Form 3172.
- The minimum funding amount is $1,000. Therefore, applications requesting less than $1,000 (net required reductions) will not be accepted or approved for an RRF grant.
- For example, if an applicant has a reduction in revenue of $2,000 but has a PPP loan for $1,500, the applicant’s application will not be approved for funding because the net value is less than $1,000.
- The SBA may provide funding of up to $5 million per location, and up to $10 million in total, for an applicant and any of its affiliated businesses that meet eligibility requirements.
- For purposes of calculating the eligible funding amount, “in operation” means the day an entity started making sales. This term does not mean the day the applicant registered with the applicable Secretary of State to establish the applicant’s legal entity.
Good Faith Certification
An applicant must make a good faith certification on SBA Form 3172 that:
- Current economic uncertainty makes the funding request necessary to support the ongoing or anticipated operations of the applicant.
- The applicant does not have a pending application for and has not received an SVOG from the SBA.
Timeframe for Using Funds (Covered Period)
Grantees must use all RRF grant funds by March 11, 2023, and they may use the funds to pay eligible expenses incurred beginning on February 15, 2020. If a grantee business permanently closes, the Covered Period will end when the business permanently closes or on March 11, 2023, whichever occurs sooner. Grantees that are unable to use all funds on eligible expenses by the end of the Covered Period must return any unused funds to the government.
Use of Funds Validation
Not later than December 31, 2021, all grantees will be required to report, through the SBA application portal, how they have used the grant funds to that point. A grantee that does not fully expend its grant funds prior to December 31, 2021 will be required to complete annual reporting submissions until it fully expends the funds or the period of the grant expires. The SBA may request supplemental documentation from each grantee to verify that it has used the grant funds for allowable purposes.
Use of Funds
Grantees may use RRF grant funds for the following expenses during the Covered Period:
- Business payroll costs (as defined in the Appendix of the program guide), 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 (including both principal and interest but excluding any prepayment of principal on a mortgage obligation).
- Business rent payments, including rent under a lease agreement (excluding any prepayment of rent).
- Business debt service (including both principal and interest but excluding 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 are expenditures made by the eligible entity for the supply of goods that:
- Are essential to the operations of the entity at the time at which the expenditure is made; and
- Are made pursuant to a contract, order, or purchase order in effect at any time before the receipt of the grant, or 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 are 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 and fees). Business operating expenses exclude expenses that occur outside of a company’s day-to-day activities.
SBA has set aside for small businesses approximately one-third of the RRF Program appropriation as follows:
- $5 billion is set aside for grantees with 2019 gross receipts of not more than $500,000.
- $4 billion is set aside for grantees with 2019 gross receipts from $500,001 to $1,500,000.
- $500 million is set aside for grantees with 2019 gross receipts of not more than $50,000.
The SBA will prioritize grants for small businesses at least 51 percent owned and controlled by women, veterans, and/or socially and economically disadvantaged individuals.
- From the first day through the 21st day of the RRF Program launch, the SBA will accept applications from all eligible applicants but will distribute funds only for approved applications where the applicant has self-certified that it meets the eligibility requirements for a small business owned by women, veterans, or socially and economically disadvantaged individuals.
- From the 22nd day through the end of the RRF Program, the SBA will accept applications from all eligible applicants and distribute funds in the order in which applications are approved by SBA.
- Applicants that were in operation prior to or on January 1, 2019, must supply documentation of gross receipts for 2019 and 2020 at the time of application;
- Applicants that began operations partially through 2019 and use Table 2 of SBA Form 3172 must supply documentation of gross receipts for 2019 and 2020 at the time of application. Applicants that began operations partially through 2019 and use Table 3 of SBA Form 3172 must supply documentation of gross receipts for 2020 at the time of application.
- Applicants that began operations on or between January 1, 2020, and ending on March 10, 2021, and applicants that have not yet opened as of March 11, 2021, but have incurred eligible expenses, must supply documentation of gross receipts and eligible expenses for the length of time in operations at the time of application.
All applicants must provide the following documentation:
- SBA Form 3172, completed, initialed, and signed. Completion of this form digitally on the SBA platform will satisfy this requirement.
- IRS Form 4506-T, completed and signed by the applicant. Completion of this form digitally on the SBA platform will satisfy this requirement.
- Any of the following documents demonstrating gross receipts and, if applicable, eligible expenses:
- Business tax returns (IRS Form 1120 or IRS Form 1120-S)
- IRS Form1040 Schedule C or IRS Form 1040 Schedule F
- Partnerships IRS Form 1065 (including K-1s)
- Bank statements
- Externally or internally prepared financial statements, such as income statements or profit and loss statements
- Point of sale report(s), including IRS Form 1099-K
In addition to the above-required documents, a brewpub, tasting room, taproom, brewery, winery, distillery, bakery or inn must provide documents evidencing that, in 2019, its on-site sales to the public comprise at least 33 percent of its total gross receipts for 2019, including 2019 Tax and Trade Bureau Forms filed, state or local government forms filed, or internally created revenue reports or accounting reports.
A Final Note