Responding to the ongoing financial distress wrought by the COVID-19 pandemic, on March 11, 2021, the American Rescue Plan Act ("American Rescue Plan") of 2021, a historic $1.9 trillion stimulus measure, became law. This alert highlights several prominent components of the American Rescue Plan affecting businesses and nonprofits hardest hit by the pandemic.
On March 18, 2021, the Small Business Administration ("SBA") released a new interim final rule, which provides guidance on American Rescue Plan provisions relating to the Paycheck Protection Program ("PPP"). The SBA also has updated its FAQs for the Shuttered Venue Operators Grant ("SVOG") program to accord with the American Rescue Plan.
Expanded Nonprofit Eligibility for Paycheck Protection Program
The American Rescue Plan extends eligibility for the PPP to virtually all Section 501(c) organizations other than Section 501(c)(4) social welfare organizations and Section 501(c)(7) social clubs, relaxes the employer-size requirements for larger Section 501(c)(3), 501(c)(6), and 501(c)(19) organizations, and adds $7.25 billion to available PPP funding.
Originally, the CARES Act restricted PPP eligibility to Section 501(c)(3) and 501(c)(19) organizations with 500 or fewer employees. At the end of last year, PPP eligibility was extended in the Economic Aid Act to most Section 501(c)(6) organizations —including trade associations, professional societies, business leagues, and chambers of commerce—and to destination marketing organizations with 300 or fewer employees if they did not engage in significant lobbying activities. Now, Section 501(c)(3) and 501(c)(19) organizations are eligible to receive a PPP if they employ no more than 500 employees per physical business location. Likewise, Section 501(c)(6) organizations and destination marketing organizations are now eligible to receive a PPP if the organization employs no more than 300 employees per physical business location, so long as they are not engaged in significant lobbying activities.
Newly eligible 501(c) organizations are subject to the same 300 or fewer employee size limit and activity limitations on lobbying that apply to Section 501(c)(6) organizations, meaning:
- No more than 15% of revenues are received from lobbying activities;
- No more than 15% of total activities comprise lobbying activities;
- Lobbying activity costs did not exceed $1 million during the most recent tax year ended prior to February 15, 2020; and
- No more than 300 employees per physical location.
While the American Rescue Plan extends PPP eligibility to more nonprofit organizations, Section 501(c)(4) organizations remain ineligible. Additionally, nonprofits that engage in certain activities that would make them ineligible if they were a for-profit business, including private clubs, are also prohibited under SBA's rules from receiving a PPP loan.
Although SBA's authority to make new PPP loans currently terminates on March 31, Congress is expected to extend the program application deadline to May 31, which would allow newly eligible nonprofits additional time to apply for funding.
Grant Relief for Restaurants, Bars, and Other Eateries
Under section 5003 of the American Rescue Plan, Congress established the Restaurant Revitalization Fund and appropriated $28.6 billion in grants for qualifying restaurants, referred to as "eligible entities." Eligible entities are restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business "in which the public or patrons assemble for the primary purpose of being served food or drink," including those located in airport terminals and those that are tribally owned, as defined in the Code of Federal Regulations.
Not all businesses that sell food will necessarily qualify for Restaurant Revitalization Fund grants, however. Establishments that are operated by a State or local government; that have more than 20 locations; or that have a pending application for or have received a Shuttered Venue Operators Grant (SVOG) under the December 2020 Consolidated Appropriations Act are not considered eligible entities. Publicly-traded companies also are excluded from consideration. When applying for a grant, an eligible entity must certify in good faith that "the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the eligible entity," which is the same certification required by the PPP and Shuttered Venue program.
Grant amounts are based on an applicant's "pandemic-related revenue loss," which is, in most cases, calculated by subtracting its 2020 gross receipts from its 2019 gross receipts. The maximum grant an entity and its affiliated businesses may receive is capped at $10 million, (which is consistent with the affiliation rules applicable under the PPP), and is limited to $5 million per physical location of the eligible entity.) An eligible entity's pandemic-related revenue losses will be reduced by the amount of any PPP loans it received in 2020 or 2021.
Under the American Rescue Plan, certain small business concerns will receive priority consideration. Specifically, during the initial 21-day period in which the SBA awards Restaurant Revitalization Fund grants, it will prioritize grants to small business concerns owned by women or veterans, or socially and economically disadvantaged small business concerns (these terms are defined by the Small Business Act).
Restaurant Revitalization Fund grants may be used to cover general payroll costs, mortgage principal or interest (but not prepayment of principal), rent payments, utilities, maintenance expenses (including construction to accommodate outdoor dining), supplies (including PPE and cleaning materials), food and beverage expenses, certain supplier costs, operating expenses, paid sick leave, and other expenses that the Administrator of the SBA determines are essential for an eligible entity to remain in business. Eligible entities should remain mindful that any unspent funds must be returned to the U.S. Treasury as early as December 31, 2021, or a later date to be determined by the Administrator of the SBA.
Additional Relief for Live Entertainment Venues and Movie Theaters
Congress appropriated an additional $15 billion to the SVOG program to be distributed as grants by SBA's Office of Disaster Assistance. As explained in a prior alert highlighting the December 2020 Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act ("Economic Aid Act"), to qualify for SVOG funds, entities must have a fixed performance or audience space with a principal business activity primarily based in the performing arts. This assistance targets: live venue operators and promoters, theatrical producers, arts organizations, motion picture theaters, museum operators, and talent representatives in operation as of February 29, 2020.
The American Rescue Plan modifies the Economic Aid Act to allow recipients of new PPP loans (those after December 27, 2020) to also receive a SVOG. However, entities that received PPP loan on or after December 27, 2020 will have the loan amount deducted from subsequent SVOG awards. (SVOG FAQ 21 &22). Entities that received PPP loans before December 27, 2020 will not have the loan amount deducted from subsequent SVOG awards. (SVOG FAQ 21 & 22). Businesses will be ineligible to apply for a PPP loan after they receive an SVOG. (SVOG FAQ 5).
Although the country has begun to emerge from many COVID-19 restrictions, the financial difficulties afflicting America's businesses, restaurants, and nonprofits are not yet in the rearview mirror. The American Rescue Plan financial stimulus measures are designed to mitigate these ongoing difficulties. We will continue to monitor for additional legislative developments and guidance.