Much needed pandemic relief for restauranteurs was enacted in the spring of 2021. Now recipients of that aid are faced with accounting for amounts they received from the Restaurant Revitalization Fund (RRF). Without specific guidance related to the accounting treatment of such funding, businesses may need additional help to report on funds they were granted.
On May 3, 2021, the U.S. Small Business Administration (SBA) opened its application process for the RRF. Created as part of the American Rescue Plan Act of 2021 and signed into law in March, the $28.6 billion RRF was designed to aid restaurants and other related businesses struggling with operations during the COVID-19 pandemic. Unfortunately, the demand for the RRF far exceeded the amount of funding appropriated by Congress, so the SBA stopped accepting applications just three weeks later on May 24. This left many businesses that had already submitted their applications without funding.
In a July 2 news release, the SBA indicated the RRF had closed as of June 30, having received more than 278,000 eligible applications with requests totaling more than $72.2 billion. Approximately 101,000 of these applications were approved, depleting the entire $28.6 billion appropriated.
Eligible applicants included restaurants and other food-related businesses, as well as breweries, wineries, and distilleries that met certain sales requirements. These businesses submitted an application through SBA-recognized point-of-sale vendors or directly through the SBA online portal. Small businesses owned by women and veterans, as well as socially and economically disadvantaged individuals were to be given priority for the SBA’s review process. According to the SBA, these underserved populations received approximately $18 billion in grant awards.
Awarded Amounts and Funds’ Use
Eligible entities could receive funding up to $5 million per physical location, but no more than $10 million per applicant and any affiliated businesses. Based on SBA guidance, award amounts could be calculated in one of three ways depending on when the applicant began operations:
- Applicants in operation prior to or on January 1, 2019: Total of 2019 gross receipts minus 2020 gross receipts minus Paycheck Protection Program (PPP) loan amounts
- Applicants beginning operations partially through 2019: (Average 2019 monthly gross receipts x 12) minus 2020 gross receipts minus PPP loan amounts
- Applicants beginning operations on or between January 1, 2020, and March 10, 2021, and applicants not yet opened but that have incurred eligible expenses: Eligible expense amount between February 15, 2020, and March 11, 2021, minus 2020 gross receipts minus 2021 gross receipts through March 11, 2021, minus PPP loan amounts
Entities could choose option 2 or 3 if they began operations partially through 2019.
The SBA website outlines an extensive list of allowable fund uses, including specific expenses such as business payroll costs, payments on business mortgage obligations, business rent payments, business debt service, utility payments, and maintenance expenses. The RRF covers expenses for the period starting February 15, 2020, through March 11, 2023.
Accounting Treatment for RRF
While U.S. Generally Accepted Accounting Principles (GAAP) provides industry-specific guidance for not-for-profit (NFP) entities to recognize revenue related to government grants, it does not contain specific accounting treatment for for-profit entities. The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) indicates that in the absence of specific guidance in U.S. GAAP, an entity should consider accounting principles for similar transactions or events within a source of authoritative U.S. GAAP. It should then consider nonauthoritative guidance from other sources. Possible approaches to consider include the accounting treatment afforded NFP entities, or the International Model following International Accounting Standards (IAS) 20: Accounting for Government Grants and Disclosure of Government Assistance.
NFP Government Grant Model – Existing U.S. GAAP states that for NFP entities, the grantor conditions should be substantially met by the entity before the receipt of funds is recognized as contribution revenue. In cases where conditions are met over time or in stages, contribution revenue should be recognized as qualifying expenses are incurred. In general, a recipient NFP entity would recognize contribution revenue as it incurs qualifying expenses, and report it as a separate line item in operating revenue on the income statement.
International Model – Since it is not a part of U.S. GAAP, the International Model would be considered a nonauthoritative source of accounting guidance. International Accounting Standard 20 outlines a capital approach (related to asset acquisition) and an income approach (generally related to expenses). Under the income approach, government grants shall be recognized in profit or loss on a systematic basis over the periods for which allowable expenses are recognized. International standards allow presentation flexibility regarding amounts recognized in the income statement, indicating that government grants related to income are presented as part of profit or loss, either separately or under a general heading such as “other income.”
How PYA Can Help
The appropriate accounting treatment for the RRF grants will depend on the unique circumstances of each grant recipient. Our team can look at your unique circumstances to help determine which approach is best for your organization. If you need assistance or would like additional RRF accounting treatment guidance, visit PYA’s COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.