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American Rescue Plan Revises Paycheck Protection Program and Shuttered Venue Operator Grant Program, Establishes Restaurant Revitalization Grant Program

March 23, 2021
Hinshaw Alert

On March 11, 2021, President Joseph Biden signed into law the American Rescue Plan Act of 2021 (ARP Act), a $1.9 trillion economic recovery package. This follows the recent adoption of the Consolidated Appropriations Act of 2021 (CA Act), which also included COVID-19-related economic relief provisions.

This client alert reviews changes made by the ARP Act to the Paycheck Protection Program (PPP) and Shuttered Venue Operator Grant Program (SVOG). It also discusses the Restaurant Revitalization Grant Program (RRG) created by the ARP Act.

Changes to the PPP Program

The ARP Act expands eligibility for PPP loans to several types of non-profit, tax-exempt organizations (each an additional covered non-profit entity), and adds $7.5 billion in funding to the PPP. These additional covered non-profit entities will be eligible to receive PPP loans. All entities (1) described in Internal Revenue Code Section 501(c) (except those described in Sections 501(c)(3), (4), (6), and (19)), and (2) exempt from taxation under Internal Revenue Code Section 501(a), will be treated as additional covered non-profit entities.

This expansion also includes internet publishing organizations assigned an NAICS code of 519130 that have 500 or fewer employees per physical location.

Section 501(c)(4) entities (social welfare organizations) are not eligible to participate in the PPP. Section 501(c)(3), (c), and (19) organizations have separate PPP eligibility requirements.

Newly eligible additional covered non-profit entities include labor unions, benefit plans, agricultural organizations, and recreational clubs.

An additional covered non-profit entity applying for a PPP loan must meet the following requirements:

It is anticipated that the current deadline to apply for a PPP loan (March 31, 2021) will be extended. However, additional covered non-profit entities should begin working with their lenders as soon as possible.

The U.S. House of Representatives voted on March 18, 2020, to extend the PPP application deadline to May 31, 2021. The legislation since has been sent to the U.S. Senate.

These newly eligible additional covered non-profit entities, like existing eligible entities, must affirm during the application process that the "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

For labor organizations and benefit plans, there are two additional items to consider as part of assessing eligibility:

As indicated above, Section 501(c)(3) and 501(c)(19) non-profit entities were already eligible to participate in the PPP. The ARP Act expands the number of employees for these entities to no more than the greater of 500 employees or, if applicable, the size and number of employees established by the SBA in 13 C.F.R. 121.201. In addition, Section 501(c)(3) entities with no more than 500 employees per physical location may participate in the PPP.

Shuttered Venue Operator Grant Program

The CA Act established the Shuttered Venue Operator Grant (SVOG) program to assist live venue operators or promoters, theatrical productions or live performing arts organization operators, motion picture theater operators, museum operators, and talent representatives in operation on February 29, 2020, that have suffered a 25% or greater drop in gross revenue during any quarter of 2020 as compared to the same quarter in 2019. The SVOG program has gotten off to a very slow start. It is anticipated that the SBA will begin accepting applications in early April.

The ARP Act adds $1.5 billion to the $15 billion set aside for SVOGs, which funds the SBA is to distribute. The ARP Act removes the requirements under the CA Act that prohibited an entity from both receiving both a PPP loan after December 27, 2020, and being eligible for a SVOG. An eligible applicant can receive a PPP loan and an SVOG. However, the amount of an SVOG will be reduced by the amount of the PPP loan received after December 27, 2020.

As an example, assume that an eligible applicant receives a First Draw PPP loan for $100,000 on March 30, 2021. Thereafter, the same eligible applicant applies for an SVOG and calculates its potential grant amount to be $200,000. Rather than receiving the full $200,000 grant, the entity will only receive $100,000.

Restaurant Revitalization Grants

The ARP Act established the RRG program, which is authorized to issue up to $28.6 billion in grants to eligible entities. Of these funds, $5 billion is earmarked for eligible entities with 2019 gross receipts of $500,000 or less.

During the initial 21-day RRG program awards period, the SBA is instructed to prioritize eligible entities that are small business concerns owned and controlled by women, veterans, or socially and economically disadvantaged individuals.

The SBA is expected to issue guidance and open the program shortly.

Eligibility

The ARP Act includes a list of specific entities eligible to receive an RRG:

The following are ineligible entities:

RRG Amounts

Grants that will be available to most eligible entities are expected to be equal to the difference between 2019 and 2020 gross receipts for each location.

Maximum grant amounts are capped at $10 million for an affiliated group and $5 million per physical location.

An affiliated business is defined as a business in which an eligible entity has an equity or right to profit distributions of not less than 50%, or in which an eligible entity has the contractual authority to control the direction of the business. This affiliation must have existed as of March 13, 2020.

There are special rules to calculate the amount that an applicant may receive if it was not in business for all of 2019, or if it was opened after January 1, 2020, and before the ARP Act's effective date.

The RRG awards will be reduced by the amount of any First or Second Draw PPP loan received by the applicant.

The SBA can adjust awards based on demand and "relative local costs" in the markets where RRG businesses operate.

RRG Uses

Eligible entities will be required to spend the grant money on certain eligible expenses such as payroll costs, maintenance expenses (including construction expenses to create outdoor seating), covered supplier costs (including protective equipment and cleaning materials), operational expenses (including normal food and beverage expenses), paid sick leave, utilities, principal and interest on mortgage obligations, rent, and any other expenses approved by the SBA as essential to maintaining operations.

Entities that do not use all of their RRG monies or that use them for unallowable expenses must return the funds to the U.S. Department of Treasury.

Eligible expenses are those incurred from February 15, 2020, to December 31, 2021, or a date determined by the SBA that cannot be after March 11, 2023 (two years after the ARP Act's effective date).

RRG Certification

An eligible entity must submit a good faith certification that:

RRG Taxes

Grants are not taxed like income, and all normal federal tax deductions are protected.

Funding for COVID-19 Relief-Related Activities

The ARP Act contained additional provisions designed to provide COVID-19-related financial relief.

Aid to Individuals

Aid to Businesses