The global pandemic crushed the restaurant industry. And though national chains survived (some just barely), small independently owned restaurants were not so lucky. Many were defeated by the lockdowns mandating carryout or drive-thru orders only, and went out of business.

While Congress has doled out hundreds of billions of dollars several times to help businesses cope with the crisis, more often than not the programs became controversial as large, multibillion-dollar corporations received relief money while small, independent operators were frozen out.

That seems to be the case again with the $28.6 billion Restaurant Revitalization Fund (RRF) that Congress created as part of the American Rescue Plan Act of 2021 passed in March. Potentially ineligible recipients -- including global hotel chains, recreation facilities, and management companies -- all received grants from the program, many getting the maximum $10 million amount allowed.

Three weeks after the program was launched, the Small Business Administration (SBA) said the RRF had run out of money. 

"Sorry We're Closed" sign in window

Image source: Getty Images.

Feeding at the trough

Through a Freedom of Information Act request filed by the Independent Restaurant Coalition (IRC) -- a trade group formed during the pandemic by independent restaurants and chefs -- the SBA released the names of funding recipients and how much they got. 

Because of previous problems with pandemic relief programs, the organization noted RRF funds were the first form of assistance many restaurants have received in 16 months. And though thousands of restaurants did get aid this time around, the IRC said it is concerned "about the number of ineligible businesses such as recreation facilities, management companies, and hotel chains who received grants from the SBA." 

Nation's Restaurant News, a trade publication, went through the SBA data and found 67 businesses got the maximum allowable grants. Among those receiving the $10 million grant were:

  • Windsor Hospitality, formerly Windsor Capital Group, a 10-unit hotel management company operating Marriott International (NASDAQ:MAR) and Hilton Worldwide Holdings (NASDAQ:MAR) brands.
  • The foodservice outlets at Disney's (NYSE:DIS) France pavilion in Walt Disney World
  • Apple's (NASDAQ:AAPL) corporate campus caterer
  • Franchisees of Dunkin Brands Group (NASDAQ:DNKN), McDonald's (NYSE:MCD), and Panera.

A number of "nontraditional businesses" like airport concession stands and event spaces also received large grants. Additionally, six Hilton Worldwide Holdings (NYSE:HLT) subsidiary locations  received some $21 million in grants, and five Wyndham Hotels & Resorts (NYSE:WH) subsidiaries received almost $3 million in grants.

Hostess ready to seat restaurant patrons

Image source: Getty Images.

Industry site Restaurant Dive notes that demand for the $28 billion fund was exceptionally high, with 307,000 applications submitted, 278,000 of which were deemed eligible. Ultimately, the SBA approved less than half of them, or 101,000. That means 177,000 applicants got nothing.

Almost a quarter of the grants were for amounts $50,000 or less and another 25.7% were for grants between $150,000 and $350,000.

Not all companies are created alike

While all the recipients were technically eligible to receive grants, there's a big difference between subsidiaries and franchisees, many of whom are actually small, independent business owners. Their costs and expenses are not too far removed from the mom-and-pop eateries, though admittedly some franchisees can be pretty big themselves. 

Nation's Restaurant News found large franchisees of national chains such as Jimmy John's, Five Guys Burgers, and Buffalo Wild Wings received grants of between $5 million and $10 million.

The SBA set fairly strict criteria for who could receive a grant, delineating that only food-and-drink places should qualify. So while some might question why Hilton and Wyndham hotel divisions were getting money, the agency had said "inns" could apply, so long as food and drink represented at least 33% of gross receipts.

While the IRC believes recreation facilities, hotel management companies, and hotel chains were ineligible under the SBC's guidelines to receive any funds, because so many of the businesses have been  counting heavily on food and beverage due to travel also getting wrecked by the pandemic, they could have met the requirements.

Chefs preparing food

Image source: Getty Images.

More may be needed

Yet the IRC is also critical of management companies and recreation facilities getting funds intended for restaurants, though it is now more concerned with having a second round of RRF funding made available, but only for smaller restaurants and bars.

It points out there were 177,000 applicants that received no money, while dubiously eligible companies were getting the maximum grants allowed. Some even got loans from the previous relief programs, like one Jersey City, New Jersey, establishment that received $3.6 million in Paycheck Protection Program loans that were forgiven, only to also get $10 million in RRF grants.

With labor costs rising, commodity expenses soaring, and the Federal Reserve saying inflation will continue to rip higher for months to come, restaurants are facing another crisis.

Last year, over a dozen restaurant chains filed for bankruptcy, including Wendy's (NASDAQ:WEN) franchisee NPC International, Chuck E. Cheese, California Pizza Kitchen, Ruby Tuesday, and more. A new relief program might be just what's needed, but one that multibillion-dollar corporations should be barred from accessing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.