If You Own a Bar or Restaurant and You Like Free Money, You’re in Luck – Maybe!By: Dan Bender | Featured | March 23, 2021
On March 11th, the American Rescue Plan Act of 2021 was signed into law by President Biden. Love it or hate it, the federal government intends to spend $1.9 trillion on stimulus program to help curb the economic effects of COVID-19. One of the hardest hit industries during the pandemic was restaurants and bars. In fact,this letter to Congress from the National Restaurant Association cites an estimated that 110,000 or 17% of all establishments closed due to COVID, with the vast majority permanently closed. Those are staggering numbers and the government’s grand solution is the $28.6 billion Restaurant Revitalization Fund.
For purposes of this legislation, the term “restaurant” is pretty broadly defined and includes a “restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise 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 drink.” This opens the door to all kinds of non-restaurant businesses that rely on selling food or drink as its primary revenue source meets the definition. Everything from the FroYo store on the corner, to the local brewery.
There are a couple of disqualifying factors, however. If a business owned more than 20 locations as of March 13, 2020, or if it has applied for the Shuttered Venue Operators Grant Program, then no dice. Interestingly though, if a qualifying business had zero revenue, but incurred expenses as of the time this law went into effect, the government will still give you a grant.
In terms of calculating the grants, the guidance is super broad. It simply says that the amount of the grant is 2019 revenue, less 2020 revenue, less any PPP money received. Yes, your eyes didn’t deceive you. This could be a massive windfall for restaurants. If a restaurant had $1 million in revenue in 2019, but only did $250,000 in 2020 due to shutdowns, the federal government is planning to write a check for the $750,000 difference. Sound too good to be true? Let’s run some quick math and see.
If 110,000 represents 17% of all restaurants as cited in the National Restaurant Association letter and most of those have closed permanently, that leaves about 550,000 restaurants still open. After a brief Google search, it seems like slightly less than half of those are chain restaurants. I’m guessing that probably 80% of those have more than 20 locations, so that leaves about 330,000 eligible restaurants, but when you add 60,000 bars, 80,000 ice cream parlors, 26,000 food trucks, and at least 100,000 other qualifying businesses such as street vendors to the mix, you get somewhere around 600,000 eligible establishments. We know that the Restaurant Revitalization Fund is $28.6 billion, so that the math suggests each business would receive an average of $48,000.
That’s certainly a lot of money, but not nearly enough to cover all of the losses. I personally advise several single restaurant locations that have all suffered losses of greater than $500,000. I imagine that most of the qualified establishments have been hit by catastrophic losses much greater than the $48,000 average I called out.
While the new stimulus package headlines might have you thinking it’s too much, too late for the restaurants, I believe we’re going to see a case of too little, for too few. We all remember the sheer and utter chaos surrounding the first round of PPP loans where big banks played favorites with their biggest customers and siphoned off much of the money that should have gone to small businesses. I’d like to think that all parties learned their lesson from that debacle, but I wouldn’t hold my breath. The reality is that we are weeks away from largest handout the industry has ever seen, and hopefully never will again.
Make no mistake, this will be a gold rush. The only question that remains to be answered is how well will it be orchestrated by the government.
Remember that unless the program gets extended, the early bird gets the worm. If you are a business owner that may qualify for this grant, make sure you’re getting your ducks in a row now. Hire a professional firm to get your books in order and help you navigate the government relief programs. There’s too much at stake not to.