Top Financial Relief Options for Restaurant Operators in 2021

We have officially been battling a global pandemic and its harsh repercussions for over a year now. And, throughout the entire course of this, legislators, banks, and financial institutions have implemented and reiterated many financial relief programs for small businesses. It could be a full-time job trying to keep up with all of the rapid changes this year— so, let’s recap the relief options available and the current guidance around them.

The Restaurant Revitalization Fund (RRF)

[UPDATE April  27, 2021: The SBA  announced the program will open Monday, May 3, at noon EST.]

One of the most notable provisions of the American Rescue Plan Act is the $28.6 billion in grants explicitly reserved for the restaurant industry known as the RRF. It goes without saying, but this is HUGE for restaurants, one of the hardest-hit sectors due to the pandemic. 

Let’s dive into the details, so you are prepared once the program opens.

How it Works
Unlike the PPP, the RRF will be entirely administered by the SBA. It does not require you to go through a bank, and you will be able to apply for a grant directly through the SBA portal once it opens.

Another bonus of the RRF is that it does not interfere with any other relief programs. You don’t have to worry about double-dipping here. 

Eligibility 

In the case of this program, it’s easier to tell you who is not eligible: Publicly traded companies and restaurants with more than 20 locations.

But to be on the safe side, here is how the National Restaurant Association outlines eligible businesses:

• Restaurant
• Food stand
• Food truck
• Food cart
• Caterer
• Saloon
• Inn, tavern, bar, or lounge
• Brewpub, tasting room, taproom, licensed facility, or premise of a beverage alcohol producer where the public may taste, sample, or purchase products
• Other similar businesses in which the public or patrons assemble for the primary purpose of being served food or drink.

Grant Amounts

The grant amount you receive will be equal to your 2019 gross revenues minus your 2020 gross revenues. If you received a PPP loan, you will need to factor the loan amount into your gross revenue for 2020. 

However, it is important to note that you do not have to include Economic Injury Disaster Loans or money received from the Employee Retention Tax Credits in your gross revenue for 2020.

The maximum grant amount is up to $10 million for any restaurant group and $5 million per restaurant.

Eligible Expenses

The RRF has a similar vision and guidelines as the PPP. The grants intend to keep restaurants in business and people employed. With that in mind, if you follow the same expense guidelines as the PPP and use the money for payroll costs, rent, utilities, and other daily operation expenditures, you will have nothing to worry about. 

Here is what the American Rescue Plan Act defines as eligible expenses:

• 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 within the scope of the standard 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

How to Apply
There are three ways to apply for the program

• Submit your application electronically at https://restaurants.sba.gov/
• Apply via phone at 844.279.8898.
• Through an SBA recognized point-of-sale vendor

How to Prepare Your Application
Restaurant owners looking to apply for RRF grants should familiarize themselves with the application process and take the following steps to prepare.

• Register for an account in advance at restaurants.sba.gov starting Friday, April 30, at 9 a.m. EST
• Review the official guidance, including the program guide, frequently asked questions, and sample application form
• Prepare the required documentation
• Decide how you are going to apply when the application portal opens on Monday, May 3, at noon EST (online, via phone, or through a POS vendor)
  • NOTE: If you work with a point-of-sale vendor, you do not need to register beforehand
• Attend a live recorded virtual training webinar.
  • Tuesday, April 27 | 2:30 p.m. EST | Register here
  • Wednesday, April 28 | 1 p.m. EST | Register here
  • Wednesday, April 28 | 2:30 p.m. EST | Register here 

PPP Loans

[Update as of March 26, 2021: The Paycheck Protection Program application deadline is now May 31, 2021 (extended from March 31, 2021)]

That’s right, we’re still talking about the Paycheck Protection Program– and it remains to be one of the most valuable options available for small businesses today. With the entire loan amount being fully-forgivable when used within the guidelines, it’s a hard one to beat. 

Since the Consolidated Appropriations Act was signed into law, eligible businesses can apply for a maximum of two PPP loans. 

Here is the breakdown of the PPP as it stands today:

Eligibility and Amounts

First-draw loans and second-draw loans have different eligibility requirements and maximums, so we will discuss them separately.

First-Draw 

The following guidelines apply to businesses that have not previously accepted a PPP loan.

Eligibility

You are eligible for a first-draw loan if:

• You have 500 or fewer full-time, part-time, or seasonal employees
• Your business was operational before February 15, 2020, and remains in operation

Loan Amount

The maximum first-draw loan amount is the lesser of:

•  2.5x your average monthly payroll and healthcare costs 
• $10 million

Find out how to calculate the maximum loan amount for your business type here.

Second-Draw 

The following guidelines apply to businesses that have previously accepted a PPP loan and are interested in applying for additional PPP funding.

Eligibility 

You are eligible for a second-draw loan if:

• You have 300 or fewer full-time, part-time, or seasonal employees
• if you have multiple locations, you may not have more than 300 employees per location.
• You can demonstrate a revenue reduction of at least 25% in the first, second, or third quarter of 2020 (compared with the same quarter in 2019). 
• You can use tax filings to demonstrate this.
• You have used or will use the full amount of the first-draw PPP.
• Your business was operational before February 15, 2020, and remains operational.

Loan Amount

The maximum amount for a second-draw loan is lesser of:

• 2.5x your average monthly payroll costs and healthcare costs in the year prior to when the loan was received or within the calendar year
• 3.5x your average monthly payroll costs and healthcare costs in the year prior to when the loan was received or within the calendar year for restaurants, bars, and other hospitality and entertainment businesses.
• (View the full list of businesses classified under Code 72 by NAICS)

Special considerations for restaurant franchisees, multi-concept operators, and multi-unit operators:

• Franchisees: A franchisee that meets the above requirements can apply for a PPP loan. The franchisor does not apply on your behalf, and the $10 million (first-draw) or $2 million (second-draw) cap applies to each franchisee entity.
• Multi-Unit Operators: If you own more than one restaurant location operating under the same business entity and employee 500 or fewer employees at each location, you are eligible for a PPP loan— even if your total employee count across all locations is more than 500. Your entire entity’s loan cap is $10 million (first-draw) or $2 million (second-draw). 
• Multi-Concept or Multi-EIN Operators: If you own multiple brand concepts or multiple locations of a single brand that operates under separate entities, each entity that employs 500 or fewer employees can apply for a PPP loan. The $10 million (first-draw) or $2 million (second-draw) cap applies to each entity. 

Loan Forgiveness

The best part about the PPP is that the loans are forgivable if you follow a few rules.

Forgiveness Guidelines

To receive absolute forgiveness, you have to:

• Maintain employee counts and salary levels
• In other words, keep the same number of people employed that you used when calculated your loan and don’t reduce their pay by more than 25%. It does not have to be the same people as long as you retain the number.
• You also will not be penalized for employees that you attempt to rehire that decline the offer.
• Spend at least 60% of the loan on payroll costs
• Gross salary or wage
• Tips
• Gross commissions
• Paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act)
• Allowances for dismissal or separation paid
• Employee benefits costs (including retirement contributions) 
• Up to 40% of the loan can be spent on other eligible expenses
• Rent, utilities, and interest on mortgage payments
• Operations expenses: software subscriptions or services used in your business operations (like Symply), such as payroll, sales, billing, and bookkeeping 
• Property damage repairs: costs due to public disturbances in 2020 that insurance did not cover
• Supplier costs: essential purchases for your business that you obtained according to a contract, order, or purchase order that was in effect before you received the loan
• Worker protection expenses: costs for protective equipment or property improvements made to comply with local or state health guidelines

Forgiveness Applications

Multiple forgiveness applications have been published since the start of the program. Specific applications have a much easier forgiveness process and should be used to your advantage if you meet the requirements.

The Paycheck Protection Program Forgiveness Application

This is the original forgiveness application published and last revised in June 2020 and still in use. 

Who can use it: Anyone who has received a PPP loan

PPP Loan Forgiveness Application Form 3508EZ

This form is known as the EZ Loan Forgiveness Application and is a simpler and more streamlined version of the original application.

Who can use it: Any business that does not reduce employee wages by more than 25% during the covered period (or alternative covered period)

PPP Loan Forgiveness Application Form 3508S

The Simplified Loan Application was published in October to streamline the forgiveness process for smaller loans even more. The key difference is that borrowers of less than 50k are exempt from forgiveness reductions based on reductions in FTE count and reductions in employee salaries or wages.

Who can use it: Any business that borrowed less than $50,000

Simple Loan Forgiveness Application
The newest of the loan forgiveness applications is designed to simplify and streamline the process for loans under $150,000. It has not been published yet, but it will be a simple one-page form and making it easier for borrowers to obtain forgiveness.

The form will require the borrower to sign and certify a description of:

• the number of employees the borrower was able to retain because of the loan
• the estimated total amount of the loan spent on payroll costs
• the total loan amount

Who can use it: Any business that borrowed less than $150,000

The bottom line is that the point of the PPP is to help small businesses stay in business and keep people employed. Yes, it is a loan, but it is meant to be fully forgiven. If you approach the program with the mindset of turning it into a grant, it can become just that.  

Employee Retention Tax Credit (ERC)

[Update as of March 12, 2021: The American Rescue Act extends the ERC through December 31, 2021.]

The ERC is another government-funded relief program that has undergone many changes since its introduction to the CARES Act. It provides relief in the form of a refundable payroll tax credit to eligible employers. When the ERC was initially implemented, employers had to choose between the Paycheck Protection Program and the Employee Retention Tax Credit. And as expected, most businesses chose the PPP because it was a better deal. 

Since the Consolidated Appropriations Act was signed into law, businesses no longer have to choose between the two programs. 

Let’s review the current eligibility requirements and how the ERC works.

2020 ERC

Eligibility

To claim the credit for the period March 13, 2020 - December 31, 2020, your business must have experienced one of the following:

• Full or partial shutdown due to COVID-19 orders from an appropriate governmental authority; OR
• A significant decline in gross receipts, defined as less than 50% of gross receipts for the same calendar quarter in 2019

If you did not claim the ERC in 2020 because you accepted a PPP loan, you might be eligible to claim the credit retroactively. 

Qualified Wages

The number of full-time employees you averaged in 2019 directly impacts the wages you can claim the credit on. We can break down the qualified wage guidelines for 2020 into two buckets; more than 100 employees and 100 employees or fewer.

If you averaged more than 100 full-time employees, you could only claim the credit on wages paid to employees that were not working. This means that you continued to pay your employees even though your business was shutdown.

If you averaged 100 employees or fewer, you could claim the credit on any wages paid to employees during the shutdown or period when gross receipts were less than 50%.

Credit Amount

The credit amount for 2020 is equal to 50% of qualified wages up to $10,000 per employee for the year.

2021 ERC

Eligibility

The Consolidated Appropriations Act made some changes to the eligibility requirements to claim the credit in 2021.

To claim the credit for the period January. 1, 2021 - December 31, 2021, your business must have experienced one of the following:

• Full or partial suspension due to COVID-19 orders from an appropriate governmental authority
• A significant decline in gross receipts defined as less than 80% of gross receipts for the same calendar quarter in 2019 
• In other words, you experienced a 20% decline in gross receipts
• The American Rescue Plan also expanded the 2021 credit eligibility to include new start-up businesses (beginning operations on or after February 15, 2020) with less than $1 million in gross receipts.

Qualified Wages

Like 2020, the number of full-time employees you averaged in 2019 affects the wages eligible for the credit. However, the Consolidated Appropriations Act increased the threshold from more than 100 full-time employees to more than 500 full-time employees. Here’s the breakdown.

If you average more than 500 full-time employees, you can only claim the credit on wages paid to employees who were not working. This means that you continued to pay your employees even though your business was ordered to shut down.

If you average 500 employees or fewer, you can claim the credit on any wages paid to employees during the shutdown or period when gross receipts were less than 80%.

Credit Amount

The credit amount for 2021 is equal to 70% of qualified wages paid up to $10,000 per employee per quarter for 2021. This means an employer could claim up to $7,000 per employee per quarter or $28,000 for all of 2021.