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Was the RRF a "big blunder?"

Where Did the Restaurant Revitalization Fund Go Wrong?

The Senate recently attempted to add $48 billion.

Majority Leader Chuck Schumer referred to the Restaurant Revitalization Fund as a down payment for a much needed, larger investment. That’s a conversation progressing in recent days, although there’s no clear sight of what’s coming next, if anything, for restaurants. Over the weekend, Senator Ben Cardin (D-MD) introduced and moved to pass a bill (S. 2675) by unanimous consent that would add $48 billion to the RRF, which closed its portal July 14 after leaving some 177,000 restaurants and bars on the outside looking in. The $28.6 billion grant program offered support to less than a third of the businesses that applied, with more than 370,000 submitted applications asking for $76 billion. Not to mention the 3,000 or so applications rescinded due to legal challenges surrounding the 21-day priority period.

Schumer and Senator Dick Durbin spoke on the Senate floor in support of the $48 billion infusion.

Cardin introduced the bill with Senators Roger Wicker, Kyrsten Sinema, and other members of the Senate Committee on Small Business and Entrepreneurship, but their attempt at unanimous consent was blocked by an objection and failed to pass.

“However, the effort shows that there is still strong bipartisan support for the industry and efforts to provide the needed funds to SBA to complete the mission of the RRF continues,” the National Restaurant Association said Monday in a statement.

“These small businesses have already suffered 17 months of losses and are now desperate for help as they face rising food costs and a new wave of consumer hesitancy,” added Erika Polmar, executive director of the Independent Restaurant Coalition, in a statement. “The Restaurant Revitalization Fund gave over 100,000 businesses and the millions of people they employ a fair shot at survival. ... Congress and the White House must prioritize relief for restaurants immediately to prevent long lasting damage to the industry and millions of people it employs.”

The bill’s introduction (and eventual failure to pass) arrives at a critical time for restaurants and bars, as Polmar noted. This past week, the CDC recommended vaccinated Americans wear masks indoors in certain parts of the country as the Delta variant pushes cases higher yet again.

“Now, localities around the country are contemplating vaccination mandates for diners and staff,” the IRC said, pointing to New York City’s decision to do just that.

Cardin said in a statement that “Congress cannot mistake the hopeful signs of recovery for proof that restaurants are back to where they were before the pandemic.”

“Restaurants nationwide remain buried under more than 18 months of debt and they are struggling to rehire staff and purchase supplies,” Cardin said. “This bill will guarantee funding to the nearly 180,000 applicants that have yet to receive grants. This can wait no longer and I regret that my unanimous consent request was objected to … It is my fear that if Congress fails to act, many of our most cherished restaurants will not survive.”

The Restaurant Revitalization Fund Replenishment Act currently boasts the support of 209 members of the House of Representatives and 15 members of the Senate. Reps. Earl Blumenauer (D-OR-3) and Brian Fitzpatrick (R-PA-1) and Sens. Wicker (R-MS), and Sinema (D-AZ) previously introduced the legislation in both chambers of Congress. This program touted $60 billion in additional funding for the RRF. As does the ENTRÉE Act introduced by Blaine Luetkemeyer, a ranking member of the House Committee on Small Business. The main difference between the two is the latter would be paid for by rescinding money from unspent Economic Industry Disaster Loans, as well as state and local funds within President Joe Biden’s American Rescue Plan, which the House Committee on Small Business called “reckless.” 

As these efforts churn, restaurants continue to grapple with pandemic-induced headwinds as well. Notably, labor and commodity inflation. Over the past year, the prices of beef and veal (up 41.4 percent), grains (up 93.8 percent), and shortening and cooking oil (up 34.8 percent) have climbed. Texas Roadhouse recently said it expects food cost inflation of 7 percent into the near future, up from a previous guidance of 4 percent laid out in April. 

Raj Tulshan, founder of Loan Mantra, spoke with FSR about the state of the RRF, where the process goes from here, how it went wrong, and what operators can do to survive the wait.

What are your thoughts on the RRF’s initial distribution of funds? The program faced its fair share of controversy, namely around the priority period. Essentially, did it meet its aim of keeping money out of the pockets of big business?

The RRF program, and the American Rescue Plan Act generally, was written with the best of intentions. Unfortunately, it was also an overcompensating attempt to correct prior wrongs from the Paycheck Protection Program. In a nutshell, the SBA's largest blunder with RRF was creating—and some critics may say—fostering a discriminatory lending environment.

Moreover, the architects of the program failed to determine and define the scope of the problem. Considering why we are disbursing this type of grant funding in the first place? The architects grossly underestimated overall costs based on their own guidelines. 

Loosely, a loss to any enterprise is its EBITDA. EBITDA ought to have been the RRF’s axiom, the number the program should have focused on. Instead, the program focused on their top number, i.e., revenue. Ironically, arguments can be made in favor of both approaches.  However, based on their proposed structure, the program budgeted approximately 66 percent less than was necessary. In hindsight, the $110 billion failed restaurant grant bill from 2020 was almost accurate.

I’m not sure I would go so far to say the RRF kept money out of the pockets of large, multi-unit restaurants; but it did keep many small businesses from getting funding they desperately needed. Especially, small businesses who could have use the money to benefit from the Great American Summer.

Overall, the RRF program, like the SVOG, was a big blunder.

What should restaurants that did receive grants be aware of now? Are there steps they should be taking to prevent issues down the line?

The grant money should optimally be used for investment into business and expansion of business. The SBA clearly defines the use of the grant funds:

  • Rent, lease or mortgage obligation
  • Utilities
  • Payroll expenses including sick leave
  • All regular business operational expenses
  • Renovation and upgrade
  • Business debt payment
  • Safety equipment and process, PPE

Small businesses who are using this time of extremes to consider their end user and market to innovate are going to be in a better place during the recovery period. Like all loans and grants, a small business must keep track of the use of proceeds. If you are the borrower, maintain a simple spreadsheet and track all your expenses. Save receipts for three years (taking queue from EIDL). If a CPA prepares your year-end financials, have them add a detailed footnote for each of your expenses.

Many of our clients are newly concerned about the pace that the SBA and U.S. Treasury are offering new grant or aid programs. In some ways, the PPP primed a small business borrower to feel this kind of anxiety. I hear individuals question whether they are being left out of funding they may be eligible for? Are there programs they should know about? This sort of frenzy is indicative of the current financial climate amidst a pandemic. But my advice is basic. Get organized. Remove the silos that keep you, a borrower, from having the information you need to be smart about your loan process. Our portal, Loan Mantra, is powered by secure financial technology that allows a borrower to store financial documents so they are ready, prepared and educated to source the right loan programs (or grants) as they arrive. Once they are ready to apply, Loan Mantra allows them to collaborate with their lender in real time. This kind of transparency and self-advocacy is vital to a borrower’s ability to grow their financial literacy and in their ability to quickly apply for grants as they are available because their documents are already prepared.

What about operators who were left out? Are there other financial options available for them?

For operators who were left out of the RRF program, numerous options are still available. My favorite is the borrower-friendly EIDL program, which offers a loan for 30 years fixed at 3.75 percent (2.75 percent for non-profits). This is a great alternative. The payment for these loans can be deferred up to 24 months. So, if an operator gets the maximum loan of $500,000, their first payment is likely to begin in March 2023 and their payment will be around $2533 per month. Moreover, these funds can be used for all business expenses including expansion of the business.

There are state grants such as the NJ grant program. CDFI run programs such as SOAR, WA Flex Fund. Finally, a borrower may look into the SBA Express, Community Advantage and/or the traditional 7(a) program.

Talk about the potential of another $60 billion infusion. How likely do you think that is?

Given that the bill has bipartisan support, it is very likely to become law. The ENTRÉE Act or HR 3807 should be approved by August 2021, which means that all RRF applicants waiting on the sidelines will receive their share of help.

What are some of the biggest issues, in your view, facing restaurants at this point in the COVID recovery?

  • Lack of employees
  • Delta variant
  • Constantly changing CDC guidelines
  • Mother nature

How do you foresee the recovery period evolving? And how will this economic curve differ from that of the Great Recession?

Notwithstanding all the noise, recovery for the restaurant industry and the macro economy will remain robust, well into 2023. Factors such as:

  • Government assistance programs
  • Household savings and debt reduction during COVID
  • Innovation in industries such as commissary kitchens will maintain the recovery momentum currently in play  

I cannot speak to the recovery post Great Recession, but this event will reshape the American middle class in line with the growth from the late 1960s.

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