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The American Rescue Plan Act – Targeted Grants and Changes to the Paycheck Protection Program

The American Rescue Plan Act – Targeted Grants and Changes to the Paycheck Protection Program Background Image

On March 11, 2021, President Biden signed the American Rescue Plan Act into law. This legislation provides additional pandemic relief for small businesses, adds grants for restaurants, increases funding for grants for entertainment venues, and makes changes to the Paycheck Protection Program (“PPP”).

Restaurant Revitalization Grants

The American Rescue Plan Act creates the Restaurant Revitalization Fund and provides $28.6 billion for grants to restaurants. This program will be administered by the Small Business Administration (“SBA”). Once the SBA publishes program rules and opens the application process, these grants will be available to restaurants that meet the eligibility criteria. Publicly traded restaurants and restaurants with over 20 locations are not eligible. Applicants must certify that “the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the eligible entity.” This certification of economic necessity is required for several pandemic relief programs, including the PPP and the grants discussed below.

A Restaurant Revitalization Grant would equal the amount of a restaurant’s “pandemic-related revenue loss,” which is the difference between 2019 and 2020 revenues. The grants are capped at $10 million and limited to $5 million per location for restaurants with multiple locations. A restaurant’s pandemic-related revenue loss will be reduced by the amount of any PPP loan received in 2020 or 2021.

Permissible uses of Restaurant Revitalization Grant funds include payroll, rent, utilities, costs to construct outdoor dining areas, food and beverage expenses, and other costs. Careful documentation of expenses is important, as reporting may be required. Some of the categories of permissible costs overlap with costs eligible for forgiveness under the PPP, and double-dipping among relief programs is not permitted. Any restaurant planning to apply for both a grant and a PPP loan must track use of funds carefully to ensure each program’s requirements are met.

Shuttered Venue Operators Grants

The Economic Aid Act of December 27, 2020 created Shuttered Venue Operators Grants (“SVO Grants”) to assist entertainment venues closed by the pandemic. The American Rescue Plan Act allocates $1.25 billion in additional funds for SVO Grants.

The American Rescue Plan Act also removes a restriction that troubled many entertainment venues. The Economic Aid Act prohibited a venue from applying for a SVO Grant if it applied for a PPP loan after December 27, 2020. The American Rescue Plan Act removes this restriction, allowing venues to apply for both relief programs. Rather than prohibiting a new PPP loan for a grant recipient, the amount of a SVO Grant will be reduced by the amount of any PPP loan received after December 27, 2020. Now, entertainment venues can apply for new PPP loans while they wait for SVO Grants to become available. SBA has predicted it will open the application process in early April.

Businesses can take the following steps now to prepare to apply for these pandemic grant programs:

This process can take several weeks, so any entity planning to apply for a grant should start the registration process as soon as possible.

Changes to the Paycheck Protection Program

The PPP has been the centerpiece relief program for small businesses during the coronavirus pandemic. Originally created by the CARES Act in March 2020, over the past year, this SBA program has provided nearly $690 billion in loans to 7.6 million small businesses across the nation. The American Rescue Plan Act provides an additional $7.25 billion in funding for the PPP and expands PPP eligibility to include additional nonprofits (including certain labor organizations) and digital news services providing local news and public health guidance.

The current deadline for PPP loan applications is March 31, 2021, and the American Rescue Plan Act did not extend this deadline. Nevertheless, immediately upon enactment of the American Rescue Plan Act, several members of Congress introduced the Paycheck Protection Program Extension Act, which would extend PPP lending to May 31, 2021.

As the PPP continues to expand and change, PPP borrowers are addressing issues related to SBA restrictions on change of ownership transactions, applications for loan forgiveness, and SBA’s mandatory reviews of PPP loans over $2 million. While the PPP is a generous program, it comes with certain strings attached, and borrowers should remain vigilant in assessing eligibility and maintaining clear documentation related to both eligibility and use of PPP loan funds.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.