Funding | KRG Hospitality

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October 4, 2024by David Klemt David Klemt No Comments

The Banks Have it Wrong

The Banks Have it Wrong

by Doug Radkey

It’s widely assumed that a well-written business plan will impress banks and SBA-type programs, and secure the funding required to launch a hospitality concept.

When starting a bar, restaurant, or hotel, most people are told exactly that: “You just need a business plan.”

The problem, however, lies in how these business plans are created. Too often, aspiring entrepreneurs turn to fill-in-the-blank templates provided by banks or online resources. They believe that simply completing the form will open the doors to financing, and start them on the path to building a successful business.

Unfortunately, this approach can do more harm than good. Let’s explore why the traditional reliance on business plan templates, including AI-generated business plans, can set both businesses and lenders up for failure.

In this article I dive into real-world examples, examine the success and failure rates of loans in the hospitality industry, and outline why banks and other programs need to rethink their loan approval processes to reduce risks for not only themselves but the entrepreneurs they serve.

The Problem with Business Plan Templates

Imagine this scenario: You’re excited to open a hospitality business, but you don’t know where to begin. You do some research, and learn quickly that you need a business plan to secure a loan. The bank or Small Business Administration (SBA) offers you a convenient template to complete, or you find one online that seems like it will do the job. You fill in the blanks, submit the plan, and, to your delight, the bank approves all or a portion of your loan.

However, the approval doesn’t mean your business plan is actually sound. Read that again.

It only means it meets the basic requirements of the bank’s loan approval checklist. A template provides a false sense of security, making entrepreneurs think they’ve covered all their bases when, in reality, crucial aspects of the business are left unaddressed.

For example, I recently reviewed a business plan for a client who had used a bank-provided template prior to our engagement. The plan was approved by the bank, but upon closer inspection, I found numerous errors: the start-up financial projections were unrealistic, the cash-flow analysis was incomplete, and crucial aspects of market analysis were missing.

The result? The project is on track to run out of money before it even opens its doors.

This example highlights a troubling issue: Templates don’t provide clarity, and they certainly don’t prompt critical thinking about the true costs to start, and the real challenges that the business will face once it’s operating.

The Risks of Using Templates

Business plan templates may seem like an easy solution, but they come with significant risks.

False Sense of Security: A completed template may look professional, but it doesn’t guarantee that the plan is sound or comprehensive. Key elements can be glossed over, copy and pasted, or simply misunderstood.
Lack of Critical Thinking: A template doesn’t ask tough or industry-specific questions. It doesn’t force you to analyze the competitive landscape, identify potential risks, or develop a clear financial strategy around a unique concept.
Inadequate Financial Analysis: Templates often provide a basic structure for financial projections but fail to help you understand the true costs of starting and running a business. A template won’t be specific to your concept, your revenue and cost channels, or industry benchmarks. The template won’t catch errors in your financials, leaving you and the bank exposed to significant risk.
Inability to Stand Out: In a crowded market such as the US, Canada, or Europe, differentiation is key. A cookie-cutter business plan won’t help you stand out from the competition. Despite handing them out, banks see thousands of these plans, and if you don’t demonstrate why your concept is unique and viable, you’re setting yourself up for denial.

The Dangers of AI-Generated Business Plans

As technology advances, AI-powered business plan generators are becoming more popular. I’ve seen a few ads for them over the past few months.

These tools claim to be able to create a business plan in minutes, promising efficiency and ease. However, relying on AI to write your business plan is just as dangerous as using a template. The same issues apply: lack of clarity, shallow financial analysis, and the absence of critical thinking.

AI-generated business plans may provide a surface-level solution, but they cannot replace the deep analysis required to make a business successful. Business plans need to be customized and thought out thoroughly, with insights drawn from real-world strategic planning.

Hospitality Industry Loans: Success and Failure Rates

The hospitality industry—particularly the accommodation and food service sectors—has one of the highest loan approval rates, but it also has some of the highest operator failure rates.

According to the U.S. Small Business Administration, in 2022 alone, 6,297 loans were approved for the accommodation and foodservice industry. These accounted for 13.2 percent of all small business loans, and 19.2 percent of total loan dollars. The average loan amount was US $784,768.

Despite these impressive loan numbers, the success rate of a business in this industry tells a different story. Only about 20 percent of hospitality businesses make it to their fifth year, and the average time to pay off a business loan ranges from five to ten years. The failure rates are driven by various factors, including cash-flow problems, a lack of market understanding, and poor financial planning.

So, why do banks continue to approve business loans based on inadequate business plans?

The Need for More than a Business Plan

Each reason for a business failing points to one underlying cause: lack of strategic clarity. In many cases, these businesses began with a standard business plan but skipped the other non-negotiable playbooks truly needed to be successful.

A well-rounded approach to strategic planning includes much more than a business plan.

Aspiring or seasoned bar, restaurant, and hotel operators need to develop feasibility studies to determine whether their business models can succeed in their target market. They also need concept development plans, prototype drawings, brand strategy plans, tech-stack plans, marketing plans, and financial playbooks.

Only after these steps are completed should the final business plan be written.

How Banks Can Improve Loan Success Rates

Banks have an opportunity to reduce their risks significantly—and increase the success rates of the businesses they fund—by requiring more than the completion of a business plan template during the loan approval process.

Instead, they should request detailed feasibility studies, along with the other playbooks, that go beyond the basics.

By working with entrepreneurs to ensure they have true clarity about their business model, market conditions, and financial outlook, banks can reduce default rates, and build stronger partnerships with their clients.

In addition, by encouraging the use of customized plans over templates or AI-generated plans, banks can ensure that they are investing in businesses with a clear path to success.

My Final Thoughts

Yes, a business plan is a vital tool for any entrepreneur, but it must be more than just a template, and lenders need to stop relying on these fill-in-the-blank approaches.

To build a successful business, you need more than a plan on paper; you need clarity, strategy, and a deep understanding of your market and financials. It’s time for banks, financing programs, and even angel investors to get it right and demand more than a standard business plan template. Only then will both the business and the lender see the long-term success they’re striving for.

Perhaps they, too, can then achieve success rates in the 90th percentile.

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December 19, 2022by David Klemt David Klemt No Comments

Restaurant Tax Credit Support Grows

Bipartisan Effort for Restaurant Revitalization Tax Credit Grows

by David Klemt

One week after the Restaurant Revitalization Tax Credit Act introduction in the Senate, a companion bill is in play.

This time, the bill is a bipartisan effort. Representative Earl Blumenauer (D-OR) is the sponsor of HR 9574. Joining him are Reps. Brian Fitzpatrick (R-PA) and Dean Phillips (D-MN).

HR 9574 is nearly identical to the Senate version, S.5219. In fact, the only real difference relates to number of employees.

Restaurant Revitalization Tax Credit Act Summary

Just like the bill in Senate currently, the House of Representative bill proposes a $25,000 payroll offset for restaurants.

In terms of eligibility, HR 9574 is identical to S.5219: Restaurant Revitalization Fund applicants. More precisely, eligible applicants that applied for but didn’t receive an RRF grant.

Further eligibility requirements are as follows:

Restaurants with operating losses of at least 30 percent in 2020 and 2021 in comparison to 2019; or
restaurants with losses of at least 50 percent in either 2020 or 2021 in comparison to 2019.

If you’re familiar with the Senate’s version, which predates the House version by a week, you may be wondering about the difference between the two bills.

Well, it comes down to number of employees. For the Senate bill, restaurants with ten employees or fewer could be eligible for the maximum payroll tax credit. That credit, again, is up to $25,000 for 2023. For every employee over ten, the refund cap drops by $2,500.

However, the House bill approaches number of employees a bit differently. Restaurants with ten or fewer employees would receive the full $25,000 payroll tax offset. For restaurants with between 11 and 20 employees, the offset would be “partially refundable.”

A Lifeline

It’s likely that neither HR 9574 nor S.5219 will receive a vote until January 2023, at the earliest.

Of course, time is of the essence for our industry. This isn’t lost on Rep. Blumenauer—an author of the RESTAURANTS ACT of 2021—or his co-sponsors.

“Restaurants and their employees were hit harder than any other industry during the COVID-19 pandemic,” says Rep. Blumenauer. “The federal government has provided some help to these institutions through the Restaurant Revitalization Fund, legislation based on my RESTAURANTS Act. But the program has fallen short, with only one-third of all applicants receiving funding.”

To add to Rep. Blumenauer’s mention successful applicants, it’s estimated that more than 175,000 applicants haven’t received a grant.

Hope, as the saying goes, isn’t a strategy. But hopefully at least one of these bills is floored, voted on, and passed in January. Too many deserving restaurants have had to endure an agonizing series of RRF roller coasters.

To continue introducing bills—hope—just to watch them fail to go anywhere is becoming cruel at this point.

Image: Emily Studer on Unsplash

November 11, 2022by David Klemt David Klemt No Comments

Why is the SBA Sitting on RRF Funds?

Why is the SBA Sitting on Tens of Millions in RRF Funds?

by David Klemt

Three months after the revelation that the SBA is sitting on $180 million in RRF funds, we’re wondering why they still aren’t disbursing the money.

Oh, and a handful of American lawmakers have the same question. In fact, two members of the House and two senators are requesting a plan from the SBA.

The patience of Representatives Earl Blumenauer (D-OR) and Brian Fitzpatrick (R-PA) appears to be at its end. So, too, the willingness for Senators Kyrsten Sinema and Roger Wicker (R-MS) to simply wait and see.

So, the bipartisan lawmakers are playing hardball, sending a strongly-worded letter to the Small Business Administration.

$180 Million in Available Funds

As it turns out, there are are tens of millions of dollars in unallocated Restaurant Revitalization Funds. Months ago, the Government Accountability Office (GAO) investigated the RRF situation.

Back in July, the fruits of the investigation came to light: of the $28.6 billion in the RRF, $180 million have not been disbursed. Further, it was reported in August that the SBA was working the Department of Justice to “formulate a plan on how to distribute” the money.

It’s now November and…there’s no news. Well, there’s news, but it’s that four bipartisan lawmakers are demanding answers and action from the SBA.

Look, $180 million is a far cry from the $40 billion our industry needed and deserved to have approved to replenish the RRF. Indeed, if every dollar of this “found” money is distributed to RRF applicants, just 0.44 percent would receive a grant.

However, nearly $200 million in funds can still help some operators. There’s simply no excuse for the SBA failing to disburse the funds six months after the GAO made their discovery.

Clearly, several lawmakers agree with this assessment.

Lawmakers Seek Action from the SBA

Earlier this week, Reps. Blumenauer and Fitzpatrick, and Sens. Sinema and Wicker, sent a letter to the SBA. Not only are they seeking action from the SBA, they’re seeking a plan by next week.

“We request the SBA provide Congress with a detailed plan and timeline to distribute unobligated RRF funding as well as detailed information regarding the agency’s progress in retrieving misallocated funds and distributing those funds to eligible applicants no later than Monday, November 14, 2022,” reads the letter.

Further, the lawmakers make their position clear: “It is inexcusable for the Small Business Administration to not dispense every single available dollar to help as many of our nation’s still struggling main street businesses.”

According to reports, the lawmakers who penned the letter are working with the Independent Restaurant Coalition and National Restaurant Association. Reporting states that the IRC and NRA endorse the letter sent by the lawmakers this week.

As of the publication of this article, the SBA has issued no response. Unfortunately, that’s not exactly surprising. After all, they’ve been silent on this topic for months.

Image: Giorgio Trovato on Unsplash

United States Capitol Building and Capitol Grounds

August 19, 2022by David Klemt David Klemt No Comments

Members of Congress Send Letter to SBA

Members of Congress Send Letter to SBA Regarding $180 Million

by David Klemt

More than 70 members of Congress are urging the Small Business Administration to act quickly to fund eligible RRF applicants.

This news comes on the heels of the findings of the Government Accountability Office’s investigation into the RRF. As you may recall, the GAO discovered $180 million in unobligated funds.

In response, 73 representatives and senators sent the SBA a letter. Sen. Catherine Cortez Masto (D-NV) and Rep. Earl Blumenauer (D-OR) are leading the effort to quickly and fairly distribute the $180 million.

At the start, members of Congress ask that the SBA take immediately action. Also, that the SBA give priority consideration to RRF applicants who didn’t receive funds even though they were awarded grants.

By the way, that’s about 7,000 applicants.

Unfortunately, the recently passed Inflation Reduction Act of 2022 doesn’t include funds to replenish the RRF. And while $180 million is nowhere near the $42-43 billion our industry needs and deserves, it’s something. In fact, it’s a reason to keep pushing Congress to do the right and responsible thing.

Interestingly, the letter sent to the SBA also urges the clawing back of funds for various reasons. One social media user, in response to the letter, suggested auditing the recipients. Presumably, this would also lead to a clawback and, in turn, the further awarding of grants.

Key Segments of the Letter

“Last month, the Government Accountability Office (GAO) released a report titled Restaurant Revitalization Fund: Opportunities Exist to Improve Oversight that stated that as of as of June 2022, $180 million of RRF funding was unobligated. As you know, about 177,000 restaurants that applied to the program did not receive awards. While we understand the remainder of the funding will not reach every business that applied, it is imperative that the SBA distribute every dollar to help as many struggling restaurants as is feasible.

“In addition to these actions, we are also urging that SBA take action to recover funds that have been awarded to ineligible applicants, were found to be accepted fraudulently, or could otherwise be returned. For example, the aforementioned GAO report states that SBA does not require recipients to report their operating status, despite the statute requiring that businesses that permanently close to return the unused funds to SBA. SBA has itself identified potentially ineligible recipients, such as clubs and hotels that failed to meet statutory eligibility criteria. Money recovered from fraudulent and ineligible businesses can subsequently be used to help
fund the many businesses who were unable to receive grants. We urge you to take action on this matter and provide us with detailed information on the amount of funding that may be recovered as well as SBA’s progress in doing so.”

Image: Francine Sreca from Pixabay

August 10, 2022by David Klemt David Klemt No Comments

So, What’s Up with that $180 Million?

So, What’s Up with that $180 Million?

by David Klemt

It’s not much in comparison to the $40 billion we need to replenish the Restaurant Revitalization Fund but $180 million is still significant.

According to a June 14 report, the Small Business Administration is sitting on $180 million in RRF funds. This information came to light due to a Government Accountability Office (GAO) investigation.

Unfortunately but unsurprisingly, the funds likely won’t reach operators for a while. Why is that? Well, the SBA is working with the Justice Department to “formulate a plan on how to distribute” the money.

As we know, bureaucracy tends to move at a glacial pace. Additionally, $180 million is nowhere close to the roughly $42 billion it would take to fund RRF applicants who have not received grants.

Where did this Money come From?

We know that $24 million is from funds set aside by the SBA for litigation. However, according to the National Restaurant Association, the American Rescue Plan Act of 2021 didn’t expressly include such a set aside.

Interestingly, the NRA is calling for the SBA to disperse the litigation set aside to RRF applicants. This is due to their interpretation of “the spirit of the law” and unobligated funds.

Now, on to the biggest chunk of the tens of millions of dollars in unawarded, unobligated RRF money. Where, exactly, are these funds from?

Well, it’s a little murky at the moment. Per the GAO, awards returned by either recipients or their financial instutions amount to $56 million. The rest, according to the GAO, comes from “realized or anticipated recoveries,” per their report.

However, some sources report that $156 million was clawed back by the SBA and that the $24 million set aside make up the $180 million.

So, Who gets the Money?

In short, we don’t know yet. In fact, we don’t even know if RRF applicants will have to apply again for a piece of the $180 million.

Additionally, we don’t know if applicants who received an approval for an RRF grant but didn’t receive the award will be processed first.

What we do know is that if every dollar of this “leftover” $180 million is distributed to RRF applicants, a mere 0.44 percent would receive a grant.

As Nation’s Restaurant News reports, 150,166 RRF applicants were in fact approved for a grant but never received one. It would take over $41 billion to fund all 150,000-plus applicants.

When the Justice Department and SBA finalize a plan, we’ll let you know.

Image: John Guccione on Pexels

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August 8, 2022by David Klemt David Klemt No Comments

Congress Fails Us Once More

Congress Fails Us Once More

by David Klemt

A “compromise” and “far from perfect,” the Inflation Reduction Act of 2022 is yet another bill that could include the RRF but fails to do so.

Not content to deliver just the gut punches our industry has already endured, Congress is leaving us out. Again.

A bill that targets inflation in the US should, logically, include replenishment of the Restaurant Revitalization Fund. However, RRF replenishing isn’t among Inflation Reduction Act compromises.

By the way, that isn’t my assessment. It’s President Joe Biden’s summary of the bill’s passage in the Senate: “This bill is far from perfect. It’s a compromise.”

To clarify, this compromise is a $430 billion spending bill that doesn’t include $40 billion to replenish the RRF. That’s interesting, considering Democrats claim the bill will not only generate enough revenue to pay for itself, they say it will generate another $300 billion throughout the next decade.

Restaurants in the US are projected to generate nearly $900 billion in sales this year. Apparently, however, that’s not enough for our politicians and lawmakers to consider us important to the economy.

Instead, those who enjoy near-inscrutable power and are in the position to stop another bout of restaurant and bar closures have chosen not to help. Our industry, which employs millions upon millions of hard-working Americans is once again on the outside looking in.

The Road to Nowhere

In a word, the road to RRF replenishment is exhausting. One Instagram user commented as such on the Independent Restaurant Coalition‘s post about us being left out of a massive spending bill yet again.

View this post on Instagram

A post shared by Indp. Restaurant Coalition (@indprestaurants)

Three months ago, the US Senate killed RRF replenishment when they voted against even debating the Small Business COVID Relief Act of 2022.

Midway through June I reported that Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, posited that the RRF could be replenished via a reconciliation bill.

Addressing the possibility, Kennedy made clear it was a longshot. He was correct.

Indeed, the Inflation Reduction Act was passed by the US Senate via reconciliation bill. A simple majority consisting of all 50 Democrat senators and Vice President Kamala Harris sends the bill to the House.

Compellingly, the nonpartisan Congressional Budget Office’s analysis of the Inflation Reduction Act indicates the bill’s name is a misnomer. According to the CBO, the bill will either have zero or nearly-zero impact on inflation this year or in 2023. A group of 230 economists warn the bill may increase inflation.

The bill is expected to pass the House in its current form and be signed by President Biden by the end of this week.

Response from the IRC

Immediately after news broke that the Inflation Reduction Act of 2022 passed the Senate but failed to include RRF replenishment, the IRC’s Erika Palomar responded.

The executive director of the IRC said:

“For nearly three years, independently owned restaurants and bars have weathered multiple COVID-19 surges, government-mandated closures, consumer hesitancy, rising prices and ongoing restrictions, while fighting to keep their doors open and staff employed. Restaurants and bars are the heartbeat of every community, and we are incredibly disappointed to not be included in the reconciliation vote this weekend. 177,300 small businesses have been patiently waiting for relief and their needs are being ignored, again.

“Thousands of restaurants and bars are at risk of closing permanently as a result of continued Congressional inaction on the replenishment of the Restaurant Revitalization Fund (RRF). The failure of Congress and the White House to act swiftly is impacting neighborhoods in every state across the country. Congress has failed these businesses, but the Independent Restaurant Coalition is not giving up the fight in any way possible to support independent restaurants.”

Further Disappointment

Over the past 15 months (longer if we really look back), our politicians and lawmakers have been consistent about one thing. They have continually failed to recognize restaurants and bars for what they are: cornerstones of their communities.

Of course, they’ll happily use our businesses for political theater and their fundraisers. But giving us more than lipservice? Not on the agenda.

Image: Paula Nardini on Pexels

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April 7, 2022by David Klemt David Klemt No Comments

House Votes to Replenish RRF

House Votes to Replenish RRF

by David Klemt

Eleven months after the closure of the Restaurant Revitalization Fund application portal, Congress has voted on RRF replenishment.

Earlier today, the House voted “yes” on $42 billion for the RRF via the Relief for Restaurants and Other Hard Hit Small Businesses Act of 2022 (HR 3807).

To clarify, the intent is that funds go to original applicants who were left out when the portal closed.

Neither the $1.7 trillion Build Back Better Act nor the $1.5 trillion omnibus spending bill passed in March included the RRF Replenishment Act.

So, this news is obviously fantastic. However, it’s also long overdue.

We’ve waited nearly 11 months for movement on relief for our ravaged industry. In comparison to the hospitality industry, the legislative process often moves at a glacial pace.

For obvious reasons, the long delay in replenishing the RRF has been devastating.

Nearly a month ago, I wrote and published “Congress is Abandoning Us.” Some considered the article harsh, others agreed with what I wrote.

To be clear, I stand by what I said after ten months of inaction. However, I’m relieved—cautiously—that the House proved their support for our industry today.

$55 Billion Lifeline

In its current form, the House bill would provide $42 billion. This is the amount believed to be enough to award grants to the original applicants from May of 2021.

Additionally, there’s another $13 billion for businesses in other hard-hit industries. So, the House bill provides a total of $55 billion in relief.

Per bill co-author Rep. Earl Blumenauer (D-OR), those who applied last year for the first (and only) round of RRF relief won’t have to re-apply.

Rep. Blumenauer reportedly told Nation’s Restaurant News that “[t]he independent restaurant is the foundation of a livable community.”

Continuing, Rep. Blumenauer told NRN, “We need to have these institutions to provide a foundation for our neighborhoods.”

As far as the source of the $55 billion, the money is supposed to come from funds recovered from 2020 and 2021 pandemic relief programs. This includes billions of dollars stolen through fraudulent relief program claims.

In an effort to combat further fraud and show the public that the funds are indeed going to the correct recipients, the SBA will be required to be transparent about its process.

As it stands, grant recipients will need to spend the funds on eligible uses by March 11, 2023.

Bittersweet

While this is huge news for our industry, it’s somewhat difficult to let go of my frustration fully. The RRF portal opened May 3, 2021. It closed just 21 days later, shutting out an estimated 177,000 grant applicants.

In June of last year, Sens. Kyrsten Sinema (D-AZ) and Roger Wicker (R-MS), and Reps. Earl Blumenauer (D-PA) and Brian Fitzpatrick (R-PA) introduced a bill to replenish the RRF.

That was followed in July by the ENTREE Act, introduced by Rep. Blaine Luetkemeyer (R-MO).

Then, in August, Sen. Rand Paul (R-KY) objected to a unanimous consent motion to fund the RRF. Essentially, after that occurred, it was crickets.

As stated above, when the Build Back Better Act was passed in November, relief for our industry was nowhere to be found.

Given all of this, and the fact that the bill must now go before senators for debate and a vote, I find myself still uneasy about the fate of the RRF.

We often say hope isn’t a strategy. However, I hope our senators do the right thing and pass the relief our industry so desperately needs and deserves.

Image: Joshua Sukoff on Unsplash

May 13, 2021by David Klemt David Klemt No Comments

Tell the Government to Refill the RRF

Tell the Government to Refill the RRF

by David Klemt

The National Restaurant Association is urging restaurant, bar and other hospitality operators to sign a Restaurant Revitalization Fund petition.

Put concisely, the NRA’s petition asks the federal government to replenish the RRF.

Grants are going out and there’s no guarantee the $28.6 billion fund is enough for every eligible business. Therefore, the NRA is calling for more funds.

The Petition

Now, there is good news regarding the RRF. Per the Small Business Administration, 21,000 applicants have received $2.7 billion in grants.

However, when one considers that well over 180,000 grant applications were submitted within the first 48 hours, the $28.6 billion will more than likely run out before every eligible business receives a grant. The first 16,000 grants alone total $2 billion.

According to one source, priority applications carry a value of approximately $29 billion. Obviously, that’s more money than is in the fund.

And that’s only the value of applications receiving priority for the first 21 days. Clearly, more funding is necessary.

As the NRA’s petition states, “We are urging policymakers in Washington—from the White House to Capitol Hill—to replenish the RRF to maximize relief for small independent and franchise restaurant operators. Americans can’t wait to get back into their favorite restaurant with their family and friends, and the federal government can play a key role in making that a reality.”

Click here to sign the NRA’s petition. Our industry is the hardest hit by the pandemic and every eligible business deserves funding.

It’s not that this industry isn’t grateful—it’s that hundreds of thousands of businesses are fighting to stay alive. They’ve been doing so for more than a year.

The RRF

The SBA’s RRF portal link is https://restaurants.sba.gov. Alternatively, operations can use a POS that’s an SBA partner to apply. Partner systems include Clover, NCR, Square, and Toast.

According to the SBA website, certain eligible entities will be given priority.

For the first 21 days the application process is open, priority will go to small businesses with a minimum of 51 percent ownership by women, veterans or socially disadvantaged people.

The application process should open to every applicant on Monday, May 24. For more in-depth information, operators can follow the appropriate links to review the Small Business Administration’s RRF program guide and sample application.

Applicants do not need to register with SAM.gov (System for Award Management) or provide DUNS or CAGE identifiers.

To calculate a grant amount, an applicant subtracts 2020 gross receipts from 2019 gross receipts. Applicants must deduct first-draw PPP and second-draw PPP loans. Any economic disaster loans—Economic Injury Disaster Loans, for example—are not RRF deductions.

Again, please click here to sign the NRA’s petition today.

Image: Konstantin Evdokimov on Unsplash

March 31, 2021by David Klemt David Klemt No Comments

PPP 2nd Draw vs ERTC vs RRF: What to Know

PPP 2nd Draw vs ERTC vs RRF: What to Know

by David Klemt

Some regions, states and people are behaving like the pandemic is over but our industry is still in crisis.

There is good news in the form of a few resources business owners can utilize.

Let’s take a look at the the Employee Retention Tax Credit, second Paycheck Protection Program draw, and Restaurant Revitalization Fund.

Paycheck Protection Program

Today is your last day to apply for the second PPP draw. That’s why we’re starting here and why, if you haven’t yet, you need to apply now.

According to the Small Business Administration, a borrower is (generally speaking) eligible if they:

previously received a first-draw PPP loan and will use (or has used) the full amount only for authorized uses;
have no more than 300 employees; and
are able to demonstrate at least a 25-percent reduction in gross receipts between comparable quarters in 2019 and 2020.

Applicants seeking a second draw need to know the following:

No extension date has been announced for the second PPP draw.
Each single borrower is limited to a $2 million loan.
Using the first draw as a model, the average loan size may be around $128,000.
The terms of second-draw PPP loans are the same regardless of who is borrowing and who is lending.

Use SBA Lender Match to find a lender today.

Employee Retention Tax Credit

When it comes to relief for this industry, much of the focus is on the PPP and RRF.

However, the ERTC can be a valuable resource for eligible restaurants.

First, what’s the ERTC? It’s a payroll tax credit—fully refundable—meant to persuade employers to keep and compensate their workers when they’re not fully operational.

Second, who’s eligible? To claim ERTC for a given calendar quarter, restaurant operators must show:

full or partial suspension as a result of orders from a governmental authority limiting commerce, travel or group meetings due to Covid-19; or
they experienced a significant decline in gross receipts during the calendar quarter when compared to 2019.

The above criteria apply to the quarter an operator is applying for the ERTC.

To better understand the ERTC, we’re including an example from the National Restaurant Association:

Henry’s Hotcakes (HH) received a $120,000 PPP loan in April 2020. These funds were fully spent on its 10 employees by September 20, 2020. Previously, HH would not have qualified for ERTC. However, HH can now reach back to its wages for the fourth quarter of 2020 (OCTDEC) and obtain up to $5,000 per eligible employee (50% credit of up to $10,000 in eligible wages) in ERTC.

Click here to read more about the ERTC on the IRS website.

Restaurant Revitalization Fund

The Restaurant Revitalization Fund is the most recent relief resource to come to fruition, so it stands to reason that it’s top of mind for most operators.

According to recent reporting, the SBA—the agency responsible for overseeing the RRF—is aiming for early April to launch the fund.

Here’s what restaurant and bar operators need to know now:

A grant is equal to the amount of a restaurant’s pandemic-related revenue losses.
Grants are tax-free.
To calculate a grant amount, subtract 2020 gross receipts from 2019 gross receipts. Operations must deduct first-draw PPP and second-draw PPP loans, even if they’re paid back or forgiven.
Any economic disaster loans—Economic Injury Disaster Loans, for example—are not RRF deductions.
Per the SBA, operators do not need to register for a System for Award Management (SAM.gov) account, meaning they no longer need to acquire a DUNS number.

The following are eligible RRF expenses:

broad operational expenses;
payroll, rent, and mortgage interest;
“normal” food and beverage inventory;
various supply purchases (PPE, for example);
property damage costs related to public disturbances in 2020;
debt obligations to suppliers before covered period;
interest payments on any other debt obligations incurred prior to Feb 15, 2020; and
refinancing EIDL.

Bear in mind that when it comes to the PPP, ERTC and RRF, changes in requirements and other processes are subject to change. Operators must stay up to date on these and other programs.

Disclaimer

This content is for informational purposes only, and should not be used as legal, tax, investment, financial, or other advice. This article does not constitute professional and/or financial advice, nor does any information constitute a comprehensive or complete statement of the matters discussed or the law. This information is of a general nature and does not address the circumstances of a specific individual or entity. The reader of this information alone assumes the sole responsibility of evaluating the merits and risks associated with the use of any information before making any decisions based on such information.

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