The Small Business Administration (SBA) has announced that the Shuttered Venue Operators Grant (SVOG) program will begin accepting applications on April 8, 2021. The program, which was established by the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) and modified by the American Rescue Plan Act of 2021 (ARPA), will provide $16.25 billion in grants to venues that were severely impacted by the COVID-19 pandemic.
According to the SBA, eligible applicants may qualify for grants equal to 45% of their gross earned revenue, with $10 million being the maximum amount available for a single grant award. $2 billion of funds in the program will be reserved for eligible businesses with up to 50 full-time employees. Applicants can sign up here to be notified when the electronic application process is available.
The SBA has provided details about the program, including who will be eligible for the grants, and has also provided a preliminary checklist of documents that will be required when submitting an SVOG application. Below are some key details about the program, but applicants should bear in mind that the guidance has been evolving rapidly through new FAQs and may continue to change. As of March 22, 2021 , the SBA has issued seven versions of the FAQs, adding new clarifications each time. Below is relevant information from the FAQs:
Eligibility for SVOG
Here are the criteria outlined by the SBA.
Eligible entities must have been in operation as of February 29, 2020 and include:
- Live venue operators or promoters.
- Theatrical producers.
- Live performing arts organization operators.
- Museum operators.
- Motion picture theatre operators.
- Talent representatives.
Entities that were not in business in 2019 are eligible if:
- They were conducting business operations on February 29, 2020, including incurring start-up costs and preparation before an anticipated opening date, and can show the required earned revenue loss.
- Their gross earned revenues for the second, third or fourth quarter of 2020 demonstrate a reduction of 25% or more from their gross earned revenue for the first quarter of 2020.
- They had commenced start-up operations but were unable to open as anticipated due to the pandemic.
Previous restrictions on applying for both a Paycheck Protection Program (PPP) loan and a SVOG have been lifted as a result of ARPA. Borrowers who receive Second Draw PPP Loans may have their SVOG amount reduced by the amount of the Second Draw PPP Loan.
A summary of the various eligibility requirements can be found here. The SBA will be hosting a webinar on March 30th to discuss the application process.
Through the FAQs, the SBA has announced that there will be no appeals process if an application is denied. Therefore, we encourage you to reach out to the Smith and Howard tax team for help with your application if you think you may be eligible.
According to the SBA, businesses that suffered the greatest economic loss will have their applications processed first. The order of priority provided by the SBA:
- Tier One – First priority will be given to businesses that experienced 90% or greater revenue loss between April 2020 and December 2020 due to the pandemic. Grants will be awarded to these businesses in the first 14 days of the program, which is expected to open on April 8, 2021.
- Tier Two – Second priority is for businesses that experienced 70% or greater revenue loss between April 2020 and December 2020 due to the pandemic. They will receive these grants in the next 14 days of the program, tentatively scheduled to begin April 22, 2021.
- Tier Three – Third priority is businesses that experienced a 25% or greater earned revenue loss between one quarter of 2019 and the corresponding quarter of 2020. These grants will be awarded in the 28 days following the first and second priority periods.
- Supplemental funding will be given to recipients of the grants in the first, second and third tiers who suffered a 70% or greater revenue loss in the most recent quarter, beginning April 1, 2021, if funds are still available after the first three tiers.
Allowable Use of Funds
The SBA has outlined how funds from the SVOG can be used. The expenses that qualify include:
- Payroll costs.
- Rent payments.
- Utility payments.
- Scheduled mortgage payments (not including prepayment of principal).
- Scheduled debt payments (not including prepayment of principal) on any indebtedness incurred in the ordinary course of business prior to February 15, 2020.
- Worker protection expenditures.
- Payments to independent contractors (not to exceed $100K in annual compensation per contractor).
- Other ordinary and necessary business expenses, including maintenance costs.
- Administrative costs (including fees and licensing).
- State and local taxes and fees.
- Operating leases in effect as of February 15, 2020.
- Insurance payments.
- Advertising, production transportation, and capital expenditures related to producing a theatrical or live performing arts production. (May not be primary use of funds.)
Funds may also be used to reimburse an owner who used their own funds to pay employees’ wages and operating expenses if the loan was:
- Incurred before February 15, 2020.
- Made on commercially reasonable terms.
- Formally documented as a standard, ordinary debt instrument.
Businesses may qualify for grants equal to 45% of their 2019 gross earned revenue. If a business began operations after January 1, 2019, then the amount of grant for which they should apply will be for their average monthly gross revenue for each full month in operation in 2019, multiplied by six. There is a cap of $10 million on single grants awarded to an eligible applicant.
The SBA is defining gross revenue in this way:
- The total of earned revenue from various sales of goods or services, such as
- admission tickets.
- food and beverages.
- advertising sales.
- contracted presentation income.
- Qualifying portions paid for a fundraising event. For example, if a ticket to a fundraising dinner costs $100 per person and the estimated value of the dinner provided is $50, then $50 of the funds generated from the fundraising ticket would be considered gross earned revenue. The other $50 would be considered a donation and would be excluded from gross earned revenue.
- The portion of membership cost that represents the estimated value of the goods or services included in the membership should be included in gross earned revenue. Any portion of the membership cost that exceeds that estimated value is considered a contribution and excluded from gross earned revenue.
Only earned revenue can be included when calculating gross earned revenue. Among items not considered earned revenue:
- Donations, foundation grants, corporate sponsorships, governmental assistance, returns on investments and individual gifts, cannot be included. These are classified as unearned revenue.
- Contributions and grants revenue would ordinarily be excluded from an organization’s earned revenue. However, the SBA will take into account an organization’s Federal grants revenue to determine whether it meets the eligibility limit of receiving no more than 10% of its gross revenue from Federal sources, not including disaster assistance.
Entities that want to apply for an SVOG are encouraged to register for a DUNS number (the Dun & Bradstreet Data Universal Numbering System) so they can register in the System for Award Management (SAM). The application process will be made through the SAM system. Once the DUNS number is received, entities should immediately begin registering in SAM.gov, as the SAM registration may take up to two weeks. In addition, the items on this checklist that are relevant to your business need to be gathered in preparation for filing. The SBA has stated that this is not an all-inclusive list and additional documents may be required.
Businesses will not qualify for the grants if they:
- Are listed on a stock exchange or majority owned and controlled by an entity listed on a stock exchange.
- Have, or are majority owned or controlled by an entity that:
- owns or operates venues, relevant museums, motion picture theatres or talent agencies or talent management companies in more than one country;
- owns or operates venues, relevant museums, motion picture theatres or talent agencies or talent management companies in more than 10 states; and
- employs more than 500 employees as of February 29, 2020, determined on a full-time equivalent basis.
- Are majority owned or controlled by an entity that received more than 10% of gross revenue from federal funding during 2019, excluding amounts received by such business under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
There is currently a bipartisan bill moving through the Georgia Legislature that proposes to make sales of tickets, fees or charges for admission to fine arts performances or exhibitions tax exempt. This is a restoration of a previous exemption. Smith and Howard is monitoring this amendment to Title 48 of the Official Code of Georgia and will keep our nonprofit clients updated if it is passed.
Our team of nonprofit and tax experts is following the SVOG program closely. Given its complexity, we invite our clients to call us for help at 404-874-6244. If you need more information about whether your business qualifies for this grant program or would like help once the SBA begins accepting applications, please complete our contact form.