The portal for the Restaurant Revitalization Fund officially closed this past week, with more than 362,000 applications seeking $75 billion in funding. Just playing a numbers game, thousands of operators will end up on the outside looking in. The fund was signed as a $28.6 billion lifeline for restaurants, particularly the smallest and hardest-hit venues.

“The National Restaurant Association and our state partners are working with our Capitol Hill supporters on a legislative strategy to replenish the RRF,” Sean Kennedy, the Association’s EVP of public affairs, said in an email Wednesday. “Despite the clear need for action, passage in Congress is by no means assured. Legislators need to understand that our industry is digging out of hundreds of billions in losses and that almost no restaurant will be ‘back to normal’ anytime soon. We will kick off our drive to produce a bipartisan bill next week, and you’ll be hearing a lot more from us soon.”

Restaurants find themselves grappling with two scenarios today. One, they already received an RRF grant (or will soon) and are plotting how to use the money to preserve the business. The other being they’re one of the countless concepts that missed out and are now asking, “what’s next?”

Let’s start with the first.

The Association created a flyer on what operators need to know to effectively—and legally—put the grant to work.

To begin, retain all records submitted with the application, including a copy of the completed application.

Retain all records supporting the application that were not submitted, including:

  • Information supporting the date the business began making sales. SBA will be looking to establish the length of time the business has been open, so this documentation will be particularly important for any business opened in 2019 and later, due to RRF requirements.
  • How the grant amount was calculated, including relevant amounts subtracted from 2020 gross receipts.
  • Information demonstrating an assertion of priority for awarding the grant (certifying that the business is eligible for prioritization as a women-owned, veteran-owned, or owned by a socially and economically disadvantaged small business). The SBA can request documentation on your application or self-certifications, and plans to conduct random audits for some grant recipients. Retain all the records related to an eligible expense.
  • Information regarding the determination of “affiliates” or “affiliated businesses.”
  • Information supporting ownership shares for owners listed on the application as of the date of the application.


Next, restaurants need to ensure they protect their SBA account information, including the email address, SBA web portal user name, and SBA web portal password in a location where it can be found at a later date.

Plan how all RRF grant funds will be spent on eligible expenses. This is a critical note. The RRF grant is NOT an economic stimulus payment. Any payments made with grant funds that are not authorized by RRF rules may require the recipient to repay the funds or become subject to a federal fraud investigation.

For a refresher, those are:

  • Business payroll costs (including sick leave), and including sick leave and costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums
  • Payments on any business mortgage obligation (both principal and interest; note: this does not include any pre-payment of principal on a mortgage obligation)
  • Business rent payments, including rent under a lease agreement (note: this does not include prepayment of rent)
  • Business debt service (both principal and interest; note: this does not include any prepayment of principal or interest)
  • Business utility payments (for the distribution of electricity, gas, water, telephone, or internet access, or any other utility that is used in the ordinary course of business for which service began before March 11, 2021)
  • Business maintenance expenses (including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment)
  • Construction of outdoor seating
  • Business supplies (including protective equipment and cleaning materials)
  • Business food and beverage expenses (including raw materials for beer, wine, or spirits)
  • Covered supplier costs, which are expenditures made by the eligible entity to a supplier for goods that: Are essential to the operations of the entity at the time at which the expenditure is made; and Is made pursuant to a contract, order, or purchase order in effect at any time before the receipt of Restaurant Revitalization Fund grant money; or with respect to perishable goods, a contract, order, or purchase order in effect before or at any time during the covered period
  • Business operating expenses, defined as business expenses incurred through normal business operations that are necessary and mandatory for the business (e.g. rent, equipment, supplies, inventory, accounting, training, legal, marketing, insurance, licenses, fees). Business operating expenses do not include expenses that occur outside of a company’s day-to-day activities


Some tips from the Association:

  • Create a RRF budget that specifically pairs the RRF funds to eligible expenses to ensure each dollar is tracked to the expense category and date of transaction.
  • The SBA is planning a “Use of Funds” validation assessment for recipients. This will be shared in the SBA RRF portal and requires recipients to report how they spent the grant funds by eligible expense category. The report is due by Dec. 31, 2021, and will be required each year until all grant funds are spent.


The next thing to consider, the Association said, is to map out the covered period timeline: February 15, 20202 to March 11, 2023, to ensure all planned expenses fit within this time period.

Here are some ideas:

  • If using the RRF grant for business debt service, remember that it can only be used for principal and interest payments. It cannot be used to pay off an entire loan or to prepay principal or interest.
  • Past-due expenses are eligible if they were incurred between Feb. 15, 2020 and March 11, 2023.
  • If using the RRF grant for payroll, do not include any compensation for employees earning over $100,000 per year. This is the same restriction that applies to Paycheck Protection Program (PPP) payroll expenses.


It’s also vital to learn how RRF funds could be treated in upcoming tax flings, the Association said. For instance, a business that chooses to use RRF money for payroll in 2021 should not plan to apply for employee retention tax credits in the same calendar quarter.

While RRF grants are not subject to federal income tax and ordinary federal tax deductions are preserved, many states do not automatically conform to the federal tax code, the Association pointed out. In fact, more than a dozen states increased a business’ tax liability due to federal PPP loans. Work with your state restaurant association to ensure state lawmakers adopt the federal treatment of RRF grants. In April 2021, the U.S. Department of Treasury said that such changes would be fully permissible under the American Rescue Plan Act.

Additionally, restaurants should prepare for public reporting. It is a reasonable expectation that federal grants would be subject to transparency requirements, including the Freedom of Information Act, the Association said. For instance, some PPP loan recipients were originally released by company name and by category of funding in June 2020. Subsequently, a federal court ordered the disclosure of all PPP loan recipients by business names and loan amount.

The Association shared some of the common questions it’s fielded from restaurants in recent weeks.

Once RRF funds are received, can a recipient move the funds to an interest-bearing account? Yes.

When a funding request is approved, is the grant award delivered in one lump sum? Yes, the SBA will directly disburse proceeds to the applicant’s operating commercial business account. The SBA automatic linking service expedites this process.

For sole proprietors operating without a commercial account, the SBA will require supporting documentation to demonstrate the account is utilized for restaurant operations, and is owned by the sole proprietor. SBA will not allow funding accounts with limited (less than three months) history or unrelated ownership to the applicant.

Can I sell my business after I receive the grant? Yes, but before the sale takes place, the seller 1) must demonstrate to SBA that all RRF funds have been used for eligible purposes prior to the sale; or 2) remit to the Treasury any RRF money that has not already been used on eligible expenses.

What if my business permanently closes after receiving the RRF grant? The entity must return the unused funds to the Treasury.

Taco Bell Drive Thru Mockup

The other scenario

What if you missed out on the RRF? As noted before, the first thing to realize is you’re not alone. This is going to be a crowded pool. And while (hopefully) more aid will come, similar to how the PPP had multiple rounds, it’s hard to count on that before the ink dries.

Sarah O’Sullivan, Accounting Director at LeaseQuery, shared some thoughts with QSR on where operators can go from here.

The question on the minds of operators now is what’s next? The National Restaurant Association and others are lobbying to replenish the RRF. But it’s hard to count on that. And nobody knows the timing. So what would be your advice to operators left out of this program, especially those who were banking on it?

It’s no surprise that the restaurant industry was hit hard by the pandemic. While the RRF provides benefits for those that have access to it, there are other things that restaurant operators can consider right now outside of that program.

One benefit of the new lease accounting is that companies are gaining a better understanding of their lease portfolios, helping them to identify inefficiencies and opportunities for cost savings. Lessees across many industries worked with lessors over the past year to negotiate new lease terms and rent concessions. The restaurant industry in particular saw a lot of rent concession activity.

The pandemic has impacted lessors as well as lessees. Now more than ever, restaurant operators are in a position to leverage this to their benefit and might find that their lessors are willing to renegotiate lease terms to the advantage of lessees.

Let’s talk about liabilities. Restaurants saw a 3,992 percent increase on their balance sheets after implementing the new lease accounting standard, per LeaseQuery’s recent data. Walk us through what that means, and why it’s critical.

By far the most significant and immediate impact of the new lease accounting standard is the fact that all operating leases are now reflected on the balance sheet. These operating leases will no longer provide the off-balance sheet benefit for companies that they once did. Industries that have historically relied heavily on operating leases are seeing significant increases in total liabilities on the balance sheet due to the adoption of the new accounting rules.

The new standard has brought transparency to lease accounting and financial statement users such as banks, investors, and creditors who will now have more information than ever before about the extent that restaurant operators are relying on operating leases and the amount of future lease payment obligations currently committed to these arrangements.

It is critical for restaurant operators to understand their entire lease portfolio as it will be up to them to make sure their banks, investors, and creditors understand how the new lease liabilities impact their business and operating models.

What are some actionable insights restaurants can take, such as centralizing lease data and creative lease design?

While the new lease accounting standards are causing a significant impact to the financial statements themselves, they also are providing lessees with benefits that might not immediately be obvious.

In addition to prompting more centralization and organization of lease data, companies are also gaining a better understanding of their lease portfolio, which is helping them make important financial decisions.

For example, companies are now able to more easily and quickly answer questions about their lease activity such as what types of leases make up the majority of rent expense, what leases should be renegotiated, and what leases have reached their expiration date but have continued on month-to-month arrangements at higher costs.

Furthermore, companies often find that having a centralized listing of active leases has assisted with building budgets and forecasts for future years. By enhancing their lease understanding and analysis, companies are better equipped to make procurement decisions.

Where do ghost kitchens and new delivery service options fit in?

The pandemic forced consumers to stay home and change their spending habits, but it also exposed them to the ease and convenience of online food ordering and delivery. As the world continues to emerge from the pandemic and economic downturn, consumers are returning to their previous routines and increasing face-to-face transactions.

However, it’s clear that the demand for food delivery services isn’t going away. Restaurant operators that plan to continue the use of ghost kitchens and delivery services going forward are faced with new procurement and leasing decisions. Some restaurant operators may decide they no longer need as much in-person retail space and instead increase their use of smaller locations that are dedicated solely to delivery transactions.

Strategic changes like these could result in savings on rent expense as restaurants reduce their real estate footprint.

Explain the “one-two punch” that could be facing operators from all of this.

The restaurant industry is currently facing significant changes on two fronts: the economic impact of the pandemic, and the accounting impact of adopting the new lease accounting standard.

Over the past year, the restaurant industry has experienced business closures and changing consumer habits, resulting in negative effects to financial performance. Add to that an average increase to liability balances of almost 4,000% due to the new lease accounting rules and the industry is having to juggle a lot of major challenges at once.

With the new lease accounting standard, companies are building knowledge and expertise in their lease portfolios, allowing them to better understand current financial performance and consider future leasing decisions with more detail and preparation.

Restaurant operators can leverage this detailed lease knowledge as they consider new and changing business strategies to mitigate the economic slide. By expanding their understanding of their lease arrangements and terms, they have the ability to identify opportunities for cost savings.

The final push by private restaurant companies to adopt ASC 842 is underway. Given that, why is it so important to understand the potential impact to the balance sheet in the restaurant sector?

In general, companies don’t want to be surprised by the financial statement results that come from adopting the new lease accounting standard. Avoiding surprises is particularly important for industries, like the restaurant industry, that historically have operated within a high leverage and active leasing environment.

The bottom line is that adopting ASC 842 is going to increase the liabilities balance on the balance sheet and companies that fully understand their lease portfolio and what that impact is are better prepared to have important discussions with banks, investors, and creditors.

For example, will the increase in lease liabilities change the analysis of certain debt covenant ratios? If so, are there steps companies should take now to discuss these changes with their banks and modify agreements if needed?

The adoption of ASC 842 also requires new and extensive footnote disclosures that bring information about the nature of a company’s lease portfolio and its financial obligations to the forefront. Companies in the restaurant industry will want to be ready to answer new questions about their lease activity and manage both internal and external messaging.

What else should restaurants know?

The best advice is to start the ASC 842 implementation process early. Not only is it a big project to undertake, but most companies find that it takes more time than they initially anticipated.

As public companies have already adopted the new lease accounting rules, there are currently many sources available that help with identifying best practices for implementation that companies still pending adoption should take advantage of.

Adopting this standard requires organization, time, and effort, but it also provides companies with opportunities to better understand and manage their operating costs.

Broadly speaking, what are you most excited about for the industry as we approach summer, the backside of COVID, and beyond?

With the vaccine rollout and the approaching summer months, consumers are ready to amp up their social lives again. The restaurant industry was innovative during the pandemic and found new and creative ways to continue operating and serving customers. It will be exciting to see what new innovations and operating models restaurant operators continue to come up with in the future. The restaurant industry is primed for a boost in business over the next several months as consumers increase face-to-face interaction visiting their favorite restaurants once again and trying out new ones opening up in the market.

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