The U.S. Small Business Administration appears to be conducting a broad post-award recovery campaign targeting Restaurant Revitalization Fund (RRF) recipients that operate restaurants, bars, or food-and-beverage businesses within hotels, resorts, motels, or other mixed-use hospitality businesses. Recent notices demand repayment on the theory that hotels and motels were not eligible entities and that a restaurant within a hotel or motel needed a separate tax identification number to qualify.
The collection notices warn that the alleged debt may be referred to the U.S. Department of Treasury for offset, private collection agency referral, Department of Justice litigation referral, credit bureau reporting, and additional fees and penalties. The notices also impose short deadlines, including 15 days to request an Office of Hearings and Appeals hearing and 60 days to submit evidence that the alleged debt is not past due or legally enforceable.
Why These Demands May Be Legally Vulnerable
The SBA’s position appears to rest on informal program guidance rather than the RRF statute. The statute defines “eligible entity” to include a “restaurant,” “inn,” “tavern,” “bar,” “lounge,” and any “other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.” The statute does not require a separate EIN for a restaurant located within another business and does not categorically exclude hotels, motels, or resorts.
The separate tax identification number requirement appears in the SBA’s RRF Program Guide, not the statute. Unlike the Paycheck Protection Program, for which SBA issued numerous formal interim final rules, SBA administered the RRF primarily through program guidance, a knowledge base, and outreach materials.
There is also a serious question whether the RRF statute authorizes recoupment in these circumstances. Its return-of-funds provision applies to unused funds or permanent closure before the end of the covered period; it does not expressly authorize SBA to claw back fully spent funds years later from a recipient that disclosed its business structure, was approved by SBA, and used the funds for eligible expenses.
How Varnum Can Help
Affected businesses should treat these notices as urgent. The SBA’s collection notice states that it is the only notice the recipient will receive before referral to Treasury.
Varnum is assisting RRF recipients in responding to these SBA recovery demands and preserving rights before collection begins. Available options may include preparing an OHA hearing request, submitting evidence that the alleged debt is not legally enforceable, requesting SBA records, filing or supplementing an Ombudsman complaint, negotiating with SBA or Treasury, and seeking emergency relief in federal court under the APA.
Businesses that received an SBA RRF repayment demand should act quickly. Varnum can prepare the administrative response and determine whether court action is warranted to stop collection.
