Joanna Fantozzi

The U.S. Small Business Administration notified 2,965 previously-approved Restaurant Revitalization Fund prioritized applicants over the weekend that it will be unable to pay these remaining claims following the outcome of lawsuits in Texas and Tennessee that barred the SBA from distributing grants on the basis of race and sex.

“The SBA is not able to pay 2,965 priority applicants — including yourself — who were previously approved and notified of their approval,” the agency said in a letter to affected applicants, which was obtained by Nation’s Restaurant News. “The SBA will not pay these claims because the legal conclusions in these court rulings would preclude payment. […] SBA’s leadership is frustrated with this outcome and remains committed to doing everything we can to support disadvantaged businesses getting the help they need to recover from this historic pandemic.”

Three separate lawsuits were filed against the SBA in April and May, claiming that the 21-day prioritization period of women and socially or economically disadvantaged individuals was a discriminatory policy.

The SBA said in the letter sent to the rescinded grant recipients that the U.S. Department of Justice filed a notice and declaration in the Northern District of Texas and the Eastern District of Tennessee noting the payments would not be made.

Related:Congress introduces a $60 billion replenishment of the Restaurant Revitalization Fund

“Hearing this was absolutely devastating,” said Kate Baumgartner, owner of Sacred Grounds Café in Edwardsville, Ill., who purchased the restaurant from its previous owners in January 2021. Baumgartner had previously applied for a RRF grant within the three-week priority window and was approved on May 25. “I had been interviewing cooks and […] and I was thinking that this will jumpstart my initiative to treat our employees better and make it a better work environment. I saw that email going into brunch while we were short staffed and it was all I could think about all weekend.”

Pariwaar Delights, a restaurant in Jersey City, N.J., received the same email as Baumgartner after previously having been approved for a $100,000 loan on May 28. The owner said he was confused by the lack of communication from the SBA.

“I already told my landlord I was approved for the grant,” Mohammed Ghulam, owner of Pariwaar Delights, said. Ghulam has had a deal with his landlord and is paying 60% of the rent until pre-pandemic business levels return. “For us, this is a nightmare. Congress should do something about this.”

According to sources that were present at a meeting on Monday with the SBA, Patrick Kelley, SBA associate administrator, said more than 170,000 applications totaling $43 billion would not receive funding due to the overwhelming interest from foodservice applicants.

Related:This Washington, D.C. taqueria received the first Restaurant Revitalization Fund grant: this was their experience

The SBA was able to process approximately 72,000 priority applications, totaling $18 billion before the lawsuits required them to shift priority distribution away from specific demographic groups. Following the priority period, the SBA distributed funding for an additional 28,000 restaurants from both priority and nonpriority groups, leaving approximately $1.1 billion in funds left, and will continue processing grants for nonpriority groups until the funding runs dry.

Last week, Congress announced that it introduced legislation for a $60 billion replenishment of the RRF, but there is no word yet on if or when that legislation would be voted on in Congress.

“We're hopeful that [the second round of RRF] will go forward,” Kelley said Monday.  “And we'll be in a position to fund all of the demand that was demonstrated. We're mindful of the fact that there would be large demand for this program. We're happy that we've helped over 100,000 businesses today was close to 27 point 5 billion, but obviously the work continues.”

If a business has already applied, they will not need to apply for a second round, if it is approved by Congress. In the meantime, the SBA recommends that frustrated applicants apply for Economic Injury Disaster Loans, for which the SBA is working on their use in conjunction with the Restaurant Revitalization Fund.  

“While we cannot comment on the specifics of the litigation, it is the north star of the U.S. Small Business Administration to assist underserved small businesses, and we’ll continue to do so," Shannon Giles, a spokesperson for the SBA told Nation's Restaurant News. "We remain committed to doing everything we can to support disadvantaged businesses in getting the help they need to recover from this historic pandemic and restore livelihoods."

Contact Joanna at [email protected]

Find her on Twitter: @JoannaFantozzi