Category: Accounting In Plain English

Estimated reading time: 12 minutes

The Consolidated Appropriations Act, 2021 established the Shuttered Venue Operators (SVO) Grant Program. The SVO grant program was further revised by the American Rescue Plan Act, which was signed into law on March 11, 2021. This article will update my earlier discussion of the SVO grant program and reflects subsequent announcements made by SBA. The shuttered venue operators grant program authorizes up to $15 billion in grants to eligible entities. The Small Business Administration, or SBA will administer the SVO grant program.

Eligible applicants may qualify for SVO grants equal to 45% of their gross earned revenue, with a maximum single grant of $10 million. $2 billion is reserved for eligible applicants with up to 50 full-time employees.

Recent Changes

The latest SBA guidance announced several important changes from previous guidance. I’ll summarize them here, and discuss them in more detail below:

• On March 21, 2021, SBA launched its SVO Grant Portal. If you are interested in SVO grants, I encourage you to bookmark that page and check it often. There is a link to sign-up to be informed when the application process opens.
• Also, on March 21 SBA announced that it will begin accepting applications for SVO grants on April 8, 2021.
• Previously, an entity was prohibited from receiving both a SVO grant and a paycheck protection program (PPP) loan. This is no longer the case:
  • If an entity applied and was approved for a PPP loan prior to December 27, 2020, it is eligible to apply for an SVO grant.
  • If an entity has applied for a first draw or second draw PPP loan on or after December 27, 2020, it is now eligible to also apply for an SVO grant. If the SVO grant is approved, however, it will be reduced by the amount of the PPP loan.
  • If an entity receives an SVO grant, it is not eligible to subsequently apply for a PPP loan.

Guidance

The SBA is in the process of setting up the grant program and will begin accepting applications on April 8, 2021. The most recent guidance from SBA, released in the form of frequently asked questions, was issued on March 12, 2021.

As noted above, if you are interested in the SVO grant program, you should visit the SBA’s portal.

SBA also released a Preliminary Application Checklist on March 5, 2021. SBA said that the SVO grant application process is still under development and the list is subject to further refinement.

On February 18, 2021, SBA released a video webinar explaining how to register in the System for Award Management (SAM). As explained below, registration in SAM is required to apply for a SVO grant.

For more information about the PPP, see my Guide to Recovery Resources.

This article is general in nature, and is not intended to provide specific advice to you or your business. You should consult with your financial and legal advisors. However, I’m happy to answer questions. Please contact me if I can be of assistance.

What you should do now

As the SBA works on building the application platform, there are some things you can do to prepare to apply:

1. Register for a Dun & Bradstreet number (DUNS). A DUNS number is necessary to apply. If you do not have a DUNS number, you can apply by clicking the link. The site indicates a number can be issued within one business day.
2. All applicants must register in the System for Award Management (SAM). The SBA encourages you to obtain your DUNS number as soon as possible and register in SAM. You cannot use an individual Taxpayer identification number, an Employer identification number or other means of identification. The SAM registration process may take up to two weeks once submitted.
3. Review and gather the required documentation to support your (eventual) application. I’ve summarized the requirements below, but you should also refer to the official SBA guidance if you have any questions.
4. Stay up to date by frequently visiting www.sba.gov/svogrant or this website as guidance is updated and the application process is opened.
5. Consider subscribing to updates from this website. It is free. You will not receive unsolicited marketing emails, and I will never sell or share your email address with anyone.

Eligible Entities

• The business must have been in operation as of February 29, 2020
• Gross earned revenue in any calendar quarter in 2020 must have declined at least 25% compared to the corresponding quarter in 2019.
• Eligible Entities include:
  • live venue operators or promoters
  • theatrical producers
  • live performance arts organization operators
  • museum operators
  • motion picture theater operators
  • talent representatives

For more details, see the recently released Eligibility Requirements guidance from SBA.

Ineligible Entities

An otherwise eligible entity would become ineligible for SVO grants under the following types of circumstances:

• It does not have a place of business located in the United States, does not operate primarily within the U.S., and does not make a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
• The firm was not in operation as of February 29, 2020
• The company received a PPP loan (first draw or second draw) on or after December 27, 2020
• It is a publicly traded corporation, or is majority owned and controlled by a publicly traded corporation
• It presents live performances or sells products or services of a prurient sexual nature
• More than 10% of its 2019 gross revenue came from the federal government (not counting disaster assistance)
• It owns or operates venues, theaters, museums or talent agencies in more than one country
• It owns or operates venues, theaters, museums or talent agencies in more then ten states AND it had more than 500 employees as of February 29, 2020

Allowable Use of Funds

Funds may be used for specific expenses, which include:

• Payroll costs
• Rent payments
• Utility payments
• Scheduled mortgage payments (not including prepayment of principal)
• Scheduled debt payments on any indebtedness incurred in the ordinary course of business prior to February 15, 2020. Similar to mortgage payments, prepayment of principal is not an allowable use of funds.
• Worker protection expenditures
• Payments to independent contractors (not to exceed $100,000 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 the primary use of funds)

Funds may not be used to:

• Buy real estate
• Make payments on loans that originated after February 15, 2020
• Investments or loans
• Contributions or other payments to, or on behalf of, political parties, political committees or candidates for election
• Any other use prohibited by the SBA Administrator

Required Documentation

---

All Applicants

Background documents

• Written statement of need and assurance
  • Required by statute and must include:
    • A good faith certification that the uncertainty of current economic conditions makes the grant necessary to support the ongoing operations of the eligible person or entity.
    • If the entity is currently in operation, must state that the entity will remain in operation after receipt of the funds.
      • If the entity is shuttered, the statement shall include the intent to reopen with an estimated reopening date.
    • All statements shall include an assurance that the entity was fully operational on February 29, 2020, and that the funds will only be used for the allowable purposes.
• .Corporate Documents
  • May include Articles of Incorporation, Certificate of Existence, Certificate of Organization, State LLC Agreement, Certificate of Formulation or Articles of Information.
• Government issued photo ID – front and back
  • A copy of a photo ID. This could be a state driver’s license, passport book, passport card, US military or military dependent ID, US permanent resident card, etc.
• Employee list with job titles and employee status (full or part-time)
  • A complete listing of all who work for the entity at the time of application. This is separate from the official payroll record. Each employee must include:
    • Complete name
    • Description of employee*:
      • Status:
        • full-time
        • part-time
        • temporary
          • employee agency
          • leasing concern
          • union agreement
        • co-employed pursuant to a professional employer organization agreement
      • salaried
        • included in payroll
        • not included in payroll
      • owner, officer or shared with affiliate.
    • Number of hours employee works per month
• Tax exempt status letter
  • only required for non-profit entities
  • also known as an IRS determination letter.

The description of employee requirement can be tricky, some individuals may require multiple designations in the description. Some examples given by SBA: “Jane Smith – owner, salaried, included in payroll” and “Joe Smith, owner, not included in payroll, shared with affiliate.”

Financial documents

• 2019 Tax Return
  • If in operation for any portion of 2019, provide a copy of the entity’s 2019 tax return.
• 2020 Tax Return, if filed
  • If not already filed, provide to SBA when filed with the IRS.
• Quarterly Income Statements for 2019 and 2020
  • Must demonstrate all sources of revenue and expenditures.
  • If not in business for all of 2019, include statements for the quarters it was in operation.
• Copy of most recently Audited Financial Statement (2019) or Single Audit (if applicable) or link to website where the report can be located
  • Unofficial guidance is that this is required for grants of $750,000 or more.
  • If the period audited is older than six months, include interim Income Statement and Balance Sheet (certified by an officer of the organization).
• Indirect cost rate agreement with cognizant agency (if applicable)
  • Attach current indirect cost rate agreement, if one is in place.
  • May negotiate a proposed rate to be negotiated.
  • If negotiated cost rate agreement was never in place, a 10% de minimus rate.
• Payroll statements covering the pay period including February 29, 2020.

Standard Forms

• SF-424B – Assurances for Non-Construction Programs.
  • Certifies the entity will comply with all applicable requirements of the federal laws, executive orders, regulations and policies governing the grant program.
• SBA Form 480 – Size Status Declaration
  • Provides information on the applying entity and any affiliates.
• Certification of Drug-Free Workplace
• SBA Form 1623
  • Certification regarding debarment, suspension and other responsibility matters.
• SBA Form 1711
  • Certification regarding lobbying and disclosure of lobbying activities.

---

Applicant-Specific Documents

Live venue operator or promoter, theatrical producer, or live performance arts organization operator

• Floor plan (and plan of grounds if outdoor space is used for the performance venue)
  • Provide the floor plan used for insurance purposes or local fire inspections. Floor Plan (and plan of grounds if outdoor space is used for the performance venue) should demonstrate the location of the defined performance space.
• Documents to show that the venue has audio mixing equipment, a public address system, and a lighting rig.
  • This can include receipts for purchase or installation, or insurance documents covering the items.
• Marketing materials
  • Include copies of print or electronic advertising, paid receipts for advertising, social media pages, etc. that list event or motion picture titles, show times and dates, and ticket price or entry requirement.
• Box office / ticketing report
  • Report listing event title, show time, ticket price and number of tickets sold.
  • Provide the report for all February 2020 performances.
  • If the venue was in operation but had no performances in February 2020, select one month between January 2019 and January 2020.

Motion Picture Theatre Operator

• Floor Plan
  • Provide the floor plan used for insurance purposes or local fire inspections. Floor Plan (and plan of grounds if outdoor space is used for the performance venue) should demonstrate the location of the defined performance space. The floor plan should also identify the projection booth.
• Marketing Materials
  • Include copies of print or electronic advertising, paid receipts for advertising, social media pages, etc. that list event or motion picture titles, show times and dates, and ticket price or entry requirement.
• Box office / ticketing report
  • Report listing event title, show time, ticket price and number of tickets sold.
  • Provide the report for all February 2020 performances.
  • If the venue was in operation but had no performances in February 2020, select one month between January 2019 and January 2020.

Museum

• Floor Plan
  • Provide the floor plan used for insurance purposes or local fire inspections. Floor Plan (and plan of grounds if outdoor space is used for the performance venue) should demonstrate the location of the defined performance space. The floor plan should also identify the projection booth if a movie theatre is part of the facility.
• State or local COVID occupancy restrictions demonstrating limits on occupancy
  • A copy of state or local ordinances that demonstrate the limitation on occupancy that affected the museum.

Talent Representative

• Examples of Contractual/Consultant Agreements
  • Examples of contractual/consultant agreements with talent represented and venues used and evidence of booking. Not all contractual agreements will be needed but you may need to provide them as evidence for disbursements.
• List of all individuals or acts represented
  • Cross walk listing for all individuals or acts represented and venues for which they were contracted to perform. This list should include all talent represented in 2019 and 2020, the venues for which they were contracted to perform and the performance dates. Note if the performance was canceled due to COVID.

SVO Grants vs PPP Loans

The SVO Grant program is intended specifically for eligible entities listed above. However, if a business received a PPP loan under the CARES act prior to December 27, 2020, it is eligible to apply for an SVO Grant. Businesses cannot apply for a SVO Grant and a PPP loan (either first draw or second draw) on or after December 27, 2020.

The SBA guidance indicates that entities cannot apply for a PPP loan and SVO grant at the same time. Entities must make an informed business decision as to which program will most benefit them. If, however, an entity is rejected by one program, it will then be eligible to apply for the other. Remember, the deadline to apply for PPP loans is March 31, 2021. Guidance does not specify a closing date for SVO grants as of the date of this article. Check back often as guidance is updated.

Some Terms Defined:

Gross earned revenue

SBA has indicated that gross earned revenue would only include receipts from the sale of goods or services. Other sources of funds that an organization may receive, such as donations, sponsorships, government assistance or returns on investments are not included in gross earned revenue.

The treatment of fundraising event receipts and non-profit memberships is similar to how they are treated for tax purposes. The portion of the amount which represents the estimated value of the good or service received is considered earned gross revenue. The amount paid that exceeds the estimated value of the good or service would be a donation, however, and is excluded from earned gross revenue.

For example, a ticket to a fundraising dinner costs $100 per person and the estimated value of the dinner is $60 then $60 of the funds would be considered earned gross revenue and the remaining $40 would be a donation.

Employee Count Explained

Employees that work at least 30 hours per week are considered full-time. Someone who works between 10 and 29 hours per week is considered to be one-half of a full-time employee. Anyone who works less than 10 hours per week is not considered an employee.

Average monthly employee count is calculated by summing the number of full-time equivalent employees in each month and dividing by the number of months.

Estimated reading time: 11 minutes

The stimulus act, enacted in December 2020, established the Shuttered Venue Operators Grant Program. Shuttered venues, such as theaters and museums are ineligible for loans under the paycheck protection programs, or PPP. The shuttered venue operators (SVO) grant program authorizes up to $15 billion in grants to eligible entities. The Small Business Administration, or SBA will administer the SVO grant program.

Eligible applicants may qualify for SVO grants equal to 45% of their gross earned revenue, with a maximum single grant of $10 million. $2 billion is reserved for eligible applicants with up to 50 full-time employees.

Guidance

The SBA is in the process of setting up the grant program and is not yet accepting applications. SBA issued guidance in the form of frequently asked questions on January 27, 2021, which was revised and expanded on March 5, 2021. This post updates and revises my previous post on SVO grants. I’ll summarize the program below, but you should read the document if you think the program applies to your business.

SBA also released a Preliminary Application Checklist on March 5, 2021. SBA said that the SVO grant application process is still under development and the list is subject to further refinement.

On February 18, 2021, SBA released a video webinar explaining how to register in the System for Award Management (SAM). As explained below, registration in SAM is required to apply for a SVO grant.

For more information about the PPP, see my Guide to Recovery Resources.

This article is general in nature, and is not intended to provide specific advice to you or your business. You should consult with your financial and legal advisors. However, I’m happy to answer questions. Please contact me if I can be of assistance.

What you should do now

As the SBA works on building the application platform, there are some things you can do to prepare to apply:

1. Register for a Dun & Bradstreet number (DUNS). A DUNS number is necessary to apply. If you do not have a DUNS number, you can apply by clicking the link. The site indicates a number can be issued within one business day.
2. All applicants must register in the System for Award Management (SAM). The SBA encourages you to obtain your DUNS number as soon as possible and register in SAM. You cannot use an individual Taxpayer identification number, an Employer identification number or other means of identification. The SAM registration process may take up to two weeks once submitted.
3. Review and gather the required documentation to support your (eventual) application. I’ve summarized the requirements below, but you should also refer to the official SBA guidance if you have any questions.
4. Stay up to date by frequently visiting www.sba.gov/svogrant or this website as guidance is updated and the application process is opened.
5. Consider subscribing to updates from this website. It is free. You will not receive unsolicited marketing emails, and I will never sell or share your email address with anyone.

Eligible Entities

• The business must have been in operation as of February 29, 2020
• Gross earned revenue in any calendar quarter in 2020 must have declined at least 25% compared to the corresponding quarter in 2019.
• Eligible Entities include:
  • live venue operators or promoters
  • theatrical producers
  • live performance arts organization operators
  • museum operators
  • motion picture theater operators
  • talent representatives

For more details, see the recently released Eligibility Requirements guidance from SBA.

Ineligible Entities

An otherwise eligible entity would become ineligible for SVO grants under the following types of circumstances:

• It does not have a place of business located in the United States, does not operate primarily within the U.S., and does not make a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
• The firm was not in operation as of February 29, 2020
• The company received a PPP loan (first draw or second draw) on or after December 27, 2020
• It is a publicly traded corporation, or is majority owned and controlled by a publicly traded corporation
• It presents live performances or sells products or services of a prurient sexual nature
• More than 10% of its 2019 gross revenue came from the federal government (not counting disaster assistance)
• It owns or operates venues, theaters, museums or talent agencies in more than one country
• It owns or operates venues, theaters, museums or talent agencies in more then ten states AND it had more than 500 employees as of February 29, 2020

Allowable Use of Funds

Funds may be used for specific expenses, which include:

• Payroll costs
• Rent payments
• Utility payments
• Scheduled mortgage payments (not including prepayment of principal)
• Scheduled debt payments on any indebtedness incurred in the ordinary course of business prior to February 15, 2020. Similar to mortgage payments, prepayment of principal is not an allowable use of funds.
• Worker protection expenditures
• Payments to independent contractors (not to exceed $100,000 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 the primary use of funds)

Funds may not be used to:

• Buy real estate
• Make payments on loans that originated after February 15, 2020
• Investments or loans
• Contributions or other payments to, or on behalf of, political parties, political committees or candidates for election
• Any other use prohibited by the SBA Administrator

Required Documentation

---

All Applicants

Background documents

• Written statement of need and assurance
  • Required by statute and must include:
    • A good faith certification that the uncertainty of current economic conditions makes the grant necessary to support the ongoing operations of the eligible person or entity.
    • If the entity is currently in operation, must state that the entity will remain in operation after receipt of the funds.
      • If the entity is shuttered, the statement shall include the intent to reopen with an estimated reopening date.
    • All statements shall include an assurance that the entity was fully operational on February 29, 2020, and that the funds will only be used for the allowable purposes.
• .Corporate Documents
  • May include Articles of Incorporation, Certificate of Existence, Certificate of Organization, State LLC Agreement, Certificate of Formulation or Articles of Information.
• Government issued photo ID – front and back
  • A copy of a photo ID. This could be a state driver’s license, passport book, passport card, US military or military dependent ID, US permanent resident card, etc.
• Employee list with job titles and employee status (full or part-time)
  • A complete listing of all who work for the entity at the time of application. This is separate from the official payroll record. Each employee must include:
    • Complete name
    • Description of employee*:
      • Status:
        • full-time
        • part-time
        • temporary
          • employee agency
          • leasing concern
          • union agreement
        • co-employed pursuant to a professional employer organization agreement
      • salaried
        • included in payroll
        • not included in payroll
      • owner, officer or shared with affiliate.
    • Number of hours employee works per month
• Tax exempt status letter
  • only required for non-profit entities
  • also known as an IRS determination letter.

The description of employee requirement can be tricky, some individuals may require multiple designations in the description. Some examples given by SBA: “Jane Smith – owner, salaried, included in payroll” and “Joe Smith, owner, not included in payroll, shared with affiliate.”

Financial documents

• 2019 Tax Return
  • If in operation for any portion of 2019, provide a copy of the entity’s 2019 tax return.
• 2020 Tax Return, if filed
  • If not already filed, provide to SBA when filed with the IRS.
• Quarterly Income Statements for 2019 and 2020
  • Must demonstrate all sources of revenue and expenditures.
  • If not in business for all of 2019, include statements for the quarters it was in operation.
• Copy of most recently Audited Financial Statement (2019) or Single Audit (if applicable) or link to website where the report can be located
  • Unofficial guidance is that this is required for grants of $750,000 or more.
  • If the period audited is older than six months, include interim Income Statement and Balance Sheet (certified by an officer of the organization).
• Indirect cost rate agreement with cognizant agency (if applicable)
  • Attach current indirect cost rate agreement, if one is in place.
  • May negotiate a proposed rate to be negotiated.
  • If negotiated cost rate agreement was never in place, a 10% de minimus rate.
• Payroll statements covering the pay period including February 29, 2020.

Standard Forms

• SF-424B – Assurances for Non-Construction Programs.
  • Certifies the entity will comply with all applicable requirements of the federal laws, executive orders, regulations and policies governing the grant program.
• SBA Form 480 – Size Status Declaration
  • Provides information on the applying entity and any affiliates.
• Certification of Drug-Free Workplace
• SBA Form 1623
  • Certification regarding debarment, suspension and other responsibility matters.
• SBA Form 1711
  • Certification regarding lobbying and disclosure of lobbying activities.

---

Applicant-Specific Documents

Live venue operator or promoter, theatrical producer, or live performance arts organization operator

• Floor plan (and plan of grounds if outdoor space is used for the performance venue)
  • Provide the floor plan used for insurance purposes or local fire inspections. Floor Plan (and plan of grounds if outdoor space is used for the performance venue) should demonstrate the location of the defined performance space.
• Documents to show that the venue has audio mixing equipment, a public address system, and a lighting rig.
  • This can include receipts for purchase or installation, or insurance documents covering the items.
• Marketing materials
  • Include copies of print or electronic advertising, paid receipts for advertising, social media pages, etc. that list event or motion picture titles, show times and dates, and ticket price or entry requirement.
• Box office / ticketing report
  • Report listing event title, show time, ticket price and number of tickets sold.
  • Provide the report for all February 2020 performances.
  • If the venue was in operation but had no performances in February 2020, select one month between January 2019 and January 2020.

Motion Picture Theatre Operator

• Floor Plan
  • Provide the floor plan used for insurance purposes or local fire inspections. Floor Plan (and plan of grounds if outdoor space is used for the performance venue) should demonstrate the location of the defined performance space. The floor plan should also identify the projection booth.
• Marketing Materials
  • Include copies of print or electronic advertising, paid receipts for advertising, social media pages, etc. that list event or motion picture titles, show times and dates, and ticket price or entry requirement.
• Box office / ticketing report
  • Report listing event title, show time, ticket price and number of tickets sold.
  • Provide the report for all February 2020 performances.
  • If the venue was in operation but had no performances in February 2020, select one month between January 2019 and January 2020.

Museum

• Floor Plan
  • Provide the floor plan used for insurance purposes or local fire inspections. Floor Plan (and plan of grounds if outdoor space is used for the performance venue) should demonstrate the location of the defined performance space. The floor plan should also identify the projection booth if a movie theatre is part of the facility.
• State or local COVID occupancy restrictions demonstrating limits on occupancy
  • A copy of state or local ordinances that demonstrate the limitation on occupancy that affected the museum.

Talent Representative

• Examples of Contractual/Consultant Agreements
  • Examples of contractual/consultant agreements with talent represented and venues used and evidence of booking. Not all contractual agreements will be needed but you may need to provide them as evidence for disbursements.
• List of all individuals or acts represented
  • Cross walk listing for all individuals or acts represented and venues for which they were contracted to perform. This list should include all talent represented in 2019 and 2020, the venues for which they were contracted to perform and the performance dates. Note if the performance was canceled due to COVID.

SVO Grants vs PPP Loans

The SVO Grant program is intended specifically for eligible entities listed above. However, if a business received a PPP loan under the CARES act prior to December 27, 2020, it is eligible to apply for an SVO Grant. Businesses cannot apply for a SVO Grant and a PPP loan (either first draw or second draw) on or after December 27, 2020.

The SBA guidance indicates that entities cannot apply for a PPP loan and SVO grant at the same time. Entities must make an informed business decision as to which program will most benefit them. If, however, an entity is rejected by one program, it will then be eligible to apply for the other. Remember, the deadline to apply for PPP loans is March 31, 2021. Guidance does not specify a closing date for SVO grants as of the date of this article. Check back often as guidance is updated.

Some Terms Defined:

Gross earned revenue

SBA has indicated that gross earned revenue would only include receipts from the sale of goods or services. Other sources of funds that an organization may receive, such as donations, sponsorships, government assistance or returns on investments are not included in gross earned revenue.

The treatment of fundraising event receipts and non-profit memberships is similar to how they are treated for tax purposes. The portion of the amount which represents the estimated value of the good or service received is considered earned gross revenue. The amount paid that exceeds the estimated value of the good or service would be a donation, however, and is excluded from earned gross revenue.

For example, a ticket to a fundraising dinner costs $100 per person and the estimated value of the dinner is $60 then $60 of the funds would be considered earned gross revenue and the remaining $40 would be a donation.

Employee Count Explained

Employees that work at least 30 hours per week are considered full-time. Someone who works between 10 and 29 hours per week is considered to be one-half of a full-time employee. Anyone who works less than 10 hours per week is not considered an employee.

Average monthly employee count is calculated by summing the number of full-time equivalent employees in each month and dividing by the number of months.

Estimated reading time: 6 minutes

Shuttered venues, such as theaters and museums are ineligible for loans under the paycheck protection programs, or PPP. Instead, the stimulus act established the Shuttered Venue Operators (SVO) Grant program. The SVO program includes $15 billion in grants to shuttered venues. The Small Business Administration will administer the SVO grant program.

Eligible applicants may qualify for SVO grants equal to 45% of their gross earned revenue, with a maximum single grant of $10 million. $2 billion is reserved for eligible applicants with up to 50 full-time employees.

The SBA is in the process of setting up the grant program and is not yet accepting applications. However, SBA issued guidance in the form of frequently asked questions on January 27, 2021. I’ll summarize it below, but you should read the document if you think the program applies to your business.

On February 18, 2021, SBA released a video webinar explaining how to register in the System for Award Management (SAM). As explained below, registration in SAM is required to apply for a SVO grant.

For more information about the PPP, see my recent article, PPP Loans: The Sequel is Better!. Note that this blog post will not be updated as circumstances change. For up-to-date information about the SVO grant program, the PPP and the Employee Retention Credit see my Guide to Recovery Resources.

This article is general in nature, and is not intended to provide specific advice to you or your business. You should consult with your financial and legal advisors. However, I’m happy to answer questions. Please contact me if I can be of assistance.

What you should do now

As the SBA works on building the application platform, there are some things you can do to prepare to apply:

1. Register for a Dun & Bradstreet number (DUNS). A DUNS number is necessary to apply. If you do not have a DUNS number, you can apply by clicking the link. The site indicates a number can be issued within one business day.
2. All applicants must register in the System for Award Management (SAM). The SBA encourages you to obtain your DUNS number as soon as possible and register in SAM. You cannot use an individual Taxpayer identification number, an Employer identification number or other means of identification. The SAM registration process may take up to two weeks once submitted.
3. Gather documents that demonstrate your number of employees and monthly revenues so you can calculate the average number of qualifying employees you had over the prior 12 months.
4. Determine the extent of gross earned revenue loss you experienced between 2019 and 2020. Firms not in operation in 2019 may qualify for an SOV grant if their gross earned revenues for the second, third or fourth quarter of 2020 demonstrate a reduction of not less than 25% from their gross earned revenue from the first quarter of 2020.
5. Other information such as floor plans, contract copies and other evidence will be needed to apply for an SOV grant.
6. Stay up to date by frequently visiting www.sba.gov/coronavirusrelief or this website as guidance is updated and the application process is opened.

Eligible Entities

• The business must have been in operation as of February 29, 2020
• Eligible Entities include:
  • live venue operators or promoters
  • theatrical producers
  • live performance arts organization operators
  • museum operators
  • motion picture theater operators
  • talent representatives

Ineligible Entities

An otherwise eligible entity would become ineligible for SVO grants under the following types of circumstances:

• It does not have a place of business located in the United States, does not operate primarily within the U.S., and does not make a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
• The firm was not in operation as of February 29, 2020
• The company received a PPP loan (first draw or second draw) on or after December 27, 2020
• It is a publicly traded corporation, or is majority owned and controlled by a publicly traded corporation
• It presents live performances or sells products or services of a prurient sexual nature
• More than 10% of its 2019 gross revenue came from the federal government (not counting disaster assistance)
• It owns or operates venues, theaters, museums or talent agencies in more than one country
• It owns or operates venues, theaters, museums or talent agencies in more then ten states AND it had more than 500 employees as of February 29, 2020

Allowable Use of Funds

Funds may be used for specific expenses, which include:

• Payroll costs
• Rent payments
• Utility payments
• Scheduled mortgage payments (not including prepayment of principal)
• Scheduled debt payments on any indebtedness incurred in the ordinary course of business prior to February 15, 2020. Similar to mortgage payments, prepayment of principal is not an allowable use of funds.
• Worker protection expenditures
• Payments to independent contractors (not to exceed $100,000 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 the primary use of funds)

Funds may not be used to:

• Buy real estate
• Make payments on loans that originated after February 15, 2020
• Investments or loans
• Contributions or other payments to, or on behalf of, political parties, political committees or candidates for election
• Any other use prohibited by the SBA Administrator

SVO Grants vs PPP Loans

The SVO Grant program is intended specifically for eligible entities listed above. However, if a business received a PPP loan under the CARES act prior to December 27, 2020, it is eligible to apply for an SVO Grant. Businesses cannot apply for a SVO Grant and a PPP loan (either first draw or second draw) on or after December 27, 2020.

The SBA guidance indicates that entities cannot apply for a PPP loan and SVO grant at the same time. Entities must make an informed business decision as to which program will most benefit them. If, however, an entity is rejected by one program, it will then be eligible to apply for the other. Remember, the deadline to apply for PPP loans is March 31, 2021. Guidance does not specify a closing date for SVO grants as of the date of this article. Check back often as guidance is updated.

Some Terms Defined:

Gross earned revenue

SBA has indicated that gross earned revenue would only include receipts from the sale of goods or services. Other sources of funds that an organization may receive, such as donations, sponsorships, government assistance or returns on investments are not included in gross earned revenue.

The treatment of fundraising event receipts and non-profit memberships is similar to how they are treated for tax purposes. The portion of the amount which represents the estimated value of the good or service received is considered earned gross revenue. The amount paid that exceeds the estimated value of the good or service would be a donation, however, and is excluded from earned gross revenue.

For example, a ticket to a fundraising dinner costs $100 per person and the estimated value of the dinner is $60 then $60 of the funds would be considered earned gross revenue and the remaining $40 would be a donation.

Employee Count Explained

Employees that work at least 30 hours per week are considered full-time. Someone who works between 10 and 29 hours per week is considered to be one-half of a full-time employee. Anyone who works less than 10 hours per week is not considered an employee.

Average monthly employee count is calculated by summing the number of full-time equivalent employees in each month and dividing by the number of months.

Estimated reading time: 2 minutes

The Small Business Administration, or SBA has released the forms to file Paycheck Protection Program, or PPP loan applications:

• SBA Form 2483 for first-draw loan application
• SBA Form 2483-SD for second-draw loan application

The SBA re-opened its PPP loan portal on Monday, January 11. Initially, the portal will only accept first draw PPP loan applications from Community Development Financial Institutions, Minority Depository Institutions, Certified Development Companies and Microloan Intermediaries. I’ll try to keep this site updated when the portal opens up for all borrowers, or you can visit the SBA’s PPP site.

Applications for PPP loans will be accepted through March 31, 2021.

For up-to-date information about the PPP program, see my Guide to Recovery Resources. Briefly, a company is eligible as a first-draw borrower if it did not receive an earlier PPP loan, and meets eligibility requirements as a small business. Second-draw loans are targeted toward the hardest-hit businesses who previously received a PPP loan but are in need of additional assistance.

Lender Alternatives

One development to the updated PPP program is that lender options have expanded beyond banks. Small businesses often find the larger banks are not responsive to small customers. Small community banks are often a better alternative for SBA loans, but if you don’t have a strong relationship with a small bank using a Fintech lender is now an option. The Fintech lenders usually have portals that directly interface with the SBA and can often provide same-day approval. Talk to your CPA about your options.

This article is obviously general in nature. I am not offering specific advice to you or your company. You should always discuss these matters with your company’s accounting, financial and legal advisors. If I can be of assistance, or you have any questions, criticisms or suggestions, please contact me. I’m always happy to help.

Estimated reading time: 12 minutes

Ever notice that sometimes the sequel is better than the original release? The second paycheck protection program, or PPP-2 not only provides for a second round of forgivable SBA loans to small businesses, but it also cleans up some issues from the original PPP contained in the CARES act.

The president signed the Economic Aid Act, a $900 billion stimulus act, into law on December 27, 2020. Contained within the Economic Aid Act, PPP-2 authorizes $325 billion in relief for small businesses in the form of forgivable loans from the Small Business Administration, or SBA.

An important thing to note here is that obviously this article is general in nature. I am not offering specific advice to you or your company. You should always discuss these matters with your company’s accounting, financial and legal advisors. If I can be of assistance, or if you have any questions, criticisms or suggestions, please contact me. I’m always happy to help.

Release of Interim Final Rules (IFRs)

Late last night (January 6, 2021), the SBA released interim final rules implementing the Economic Aid Act:

• Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act
  • This document consolidates the IFRs and important guidance issued to date regarding borrower eligibility, lender eligibility, and PPP application and origination requirements for new PPP loans
  • Also defines general rules relating to loan increases and loan forgiveness
• Interim Final Rule on Second Draw Loans
  • Outlines the key differences between 1st draw and 2nd draw loans
• SBA Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns
  • PPP loan applications will only be accepted from community financial institutions for at least the first two days when the PPP portal re-opens
  • Sets aside $25 billion for borrowers with 10 or fewer employees or loans for less than $250,000 in low-income areas

Also, the IRS issued revenue ruling 2021-2 which confirming the tax implications of PPP loan forgiveness and the deductibility of expenses paid with the proceeds of PPP loans that are forgiven.

Significant changes from the original version of this article will appear in red text. The changes reflected in today’s update (January 7) are the highlights based on a preliminary review, and additional details will be added over the coming days.

Instead of updating all of the blog posts when new information becomes available, I’ve created a Guide to Recovery Resources for up-to-date information on the PPP, the Employee Retention Credit and the Shuttered Venue Operators Grant program, all in one place.

If you are interested in this topic, my suggestion is that you consider subscribing to my updates. It is free, and I promise I will respect your privacy and not sell or otherwise share your contact information without your consent.

Clean-up of CARES Act

When Congress passes a major program, like the CARES act, it lays out the game. However, the detailed regulations are defined by the federal bureaucracy: the Treasury Department, the Internal Revenue Service and the Small Business Administration among others. The regulations are usually drafted to try to be consistent with other regulations which in many cases is what Congress intends. In the case of the CARES act, however, the intent was to provide relief and support for businesses. A significant impact of the Economic Aid Act clarifies the intent of Congress for the regulators. Accordingly, guidance and regulations for the original PPP program are being revised.

Tax Implications of PPP Loan Forgiveness

The general rule is that loan amounts forgiven are included in taxable income. The Economic Aid Act provides that taxable gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. This provision is effective as of the date of the CARES act. Therefore, loan forgiveness of either original PPP loans or PPP-2 loans does not result in taxable income. This is an important clarification. To implement this provision, the IRS has issued Rev. Ruling #2021-2. See above.

Deductibility of Expenses

Previous guidance was that expenses paid with the proceeds of PPP loans that were forgiven were not deductible for federal income tax purposes. The Economic Aid Act provides that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven. This provision is also effective as of the date of the CARES act. Accordingly, expenses that would otherwise be deductible remain deductible whether or not they were paid from the proceeds of either an original PPP loan or a PPP-2 loan that is forgiven. To implement this provision, the IRS has issued Rev. Ruling #2021-2. See above. Another huge win for small businesses.

Repeal EIDL Advance deduction from PPP forgiveness

An EIDL Advance was a grant program offered together with the economic injury disaster loan, or EIDL program. Under previous guidance, amounts received as an EIDL Advance were deducted from the amount of a PPP loan that could be forgiven. For example, if a company received a $10,000 EIDL Advance and a $100,000 PPP loan, then only $90,000 of the PPP loan could be forgiven and the remaining $10,000 would have to be repaid. The result was an unpleasant surprise for borrowers under the PPP program when applying for loan forgiveness.

The Economic Aid Act provides that the entire PPP loan amount remains forgivable. Again, the effective date of the provision is as of the CARES act, so it would retroactively change the forgivable amounts of original PPP loans. If you had an EIDL Advance and have already applied for loan forgiveness under the original PPP program then the forgivable amount of your loan should be unaffected by the EIDL Advance.

Changes to Loan Forgiveness

There are newly eligible expenses defined in the PPP-2 program that also apply to original PPP loans, unless forgiveness has already been processed. See below.

Second Draw Loans

The recent stimulus act also provides $284.5 billion for a second round of paycheck protection program loans, which I’ll refer to as PPP-2. The program is similar to the original PPP under the CARES act, but with some important differences. The first group of IFRs have recently been issued. Forms and additional guidance can be expected in the very near future. As I said above, the situation is fluid and final regulations and forms have not been issued so check back often to keep up to date. Companies who received PPP loans may be eligible for a second loan, called a second draw loan. There is also $35 billion reserved for 1st time borrowers. The last day to apply for 1st or 2nd draw PPP-2 loans is March 31, 2021.

Second Draw Eligibility

PPP-2 second draw loans are targeted for the hardest hit borrowers. There are four major requirements to be eligible:

• The business must have been in operation on February 15, 2020.
• Generally, 300 or fewer employees.
  • For businesses with multiple locations, not more than 300 employees per physical location.
• A decline in gross receipts of 25% in any quarter in 2020 compared with the same quarter in 2019.
  • Loans received under EIDL or the original PPP are not included in gross receipts
  • At this point, it appears that calendar quarters are to be used, but again final regulations are pending
  • Gross receipts is defined as all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source including:
    • Sales of products or services
    • Interest and dividends
    • Rents
    • Royalties
    • Fees
    • Commissions
    • Reduced by returns and allowances
  • Comparison methods will differ for borrowers who were not in operation the entire year of 2019.
  • If forgiveness amount of a first draw PPP loan is recorded in calendar year 2020 revenue it is excluded from the gross receipts comparison.
• The January 6 IFR provides an alternative approach to calculating the decline in gross receipts. A borrower that was in operation in all four quarters of 2019 can compare total annual receipts in 2020 to annual receipts in 2019 rather than doing a quarter-by-quarter comparison. Under this alternative approach, copies of annual tax forms substantiating the revenue decline would be submitted.
• A borrower must certify that it has used or will use the full amount of first draw funds only for eligible expenses. This is a significant change from the guidance contained in the original article.

Ineligible Entities

The following types of organizations are ineligible for PPP-2 loans:

• An entity that has permanently closed.
• Entities receiving Shuttered Venue Operator Grants. These grants are provided for in the law, but are beyond the scope of this article.
• Publicly-traded businesses
• Lobbying organizations
• Hedge funds or private equity funds
• Entities affiliated with the People’s Republic of China
• Those registered under the Foreign Agents Registration Act
• The President, Vice President, head of an Executive department, Member of Congress or their spouse
• Household employers
• Entities in bankruptcy

The above list is not comprehensive, however. You should check with your accountant or legal advisors as to your company’s eligibility.

Second Draw Loan Amounts

The maximum loan amount for second draw borrowers under PPP-2 is $2 million. As a general rule, a company’s maximum loan amount is calculated at 2.5 times their average monthly payroll costs. Companies can use either their 2019 payroll amounts, or the 12-months prior to application to calculate average monthly payroll. Using 2019 could be beneficial to companies who have reduced payroll costs during 2020. Companies who have been in operation less than 12 months would use the average monthly payroll costs for the period of operation.

Restaurants, hotels and other businesses in NAICS code 72, Accommodation and Food Services, are eligible for 3.5 times their average monthly payroll costs.

Seasonal employers can look at any 12-week period from February 15, 2019 through February 15, 2020. A seasonal employer is one who operates for no more than seven months in a year or who earned no more than 1/3 of its receipts in any six months in the prior calendar year.

Second Draw Documentation

Generally, the same as documentation required for first draw PPP loans. No additional documentation to substantiate payroll costs will be required if:

• The borrower used calendar year 2019 figures to determine its first draw and second draw loan amount and
• The lender is the same

For loans over $150,000, documentation to support a revenue decline must be submitted with the application. Acceptable documentation would include:

• Relevant tax forms, including annual tax forms
• If relevant tax forms are not available, quarterly financial statements or bank statements

For loans of $150,000 or less, documentation is not submitted with the loan application but must be submitted on or before the date the borrower applies for loan forgiveness.

Second Draw Process

A borrower must submit to the lender SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form). This form is not yet available as of today (January 7, 2021). Check back for updates.

The lender will submit a request through the SBA’s website to increase the PPP loan amount, even if the loan has been fully disbursed. In addition to the $2 million second draw loan amount, in no event can the increased loan amount exceed the maximum PPP loan amount ($10 million for an individual borrower or $20 million for a corporate group).

The borrower must provide the lender with required documentation to support the calculation of the increase.

Second Draw Certifications

As part of the loan application, the borrower will be required certify:

• It has not and will not receive another second draw
• The borrower realized a reduction in gross receipts in excess of 25% relative to the relevant comparison time period
• The borrower has used or will use first draw proceeds only for eligible expenses
• It is not an ineligible entity

Covered Period

To maximize loan forgiveness, the borrowed funds have to be spent on eligible expenses during the covered period. Under PPP-2, a borrower can choose a covered period that is between 8 and 24 weeks. Under the original PPP, the covered period had to be specified as either 8 or 24 weeks, but under PPP-2 it can be any period between.

The covered period for all PPP loans is extended from December 31, 2020 to March 31, 2021.

First Draw Borrowers

As noted above, $35 billion has been set aside for first time borrowers. The maximum loan amount for first draw borrowers is the lesser of 2.5 times average monthly payroll costs and $10 million for an individual borrower. The list of eligible first draw borrowers is a bit more extensive than second draw borrowers:

Eligible First Draw Borrowers

• Generally, businesses with 500 or fewer employees that are eligible for SBA 7(a) loans
• Sole proprietors, independent contractors, and eligible self-employed individuals
• Any business that averages less than 500 employees per physical location that has a NAICS code starting with 72 (accommodation and food services)
• Nonprofits, including churches
• 501(c)(6) and destination marketing organizations
  • 300 or fewer employees
  • Chambers of commerce, economic development, tourism
  • Subject to lobbying threshold:
    • 15% of receipts
    • 15% of activities
    • $1 million total
• Certain news organizations
• Housing cooperatives

Other

$25 billion has been set aside for borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas.

Farmers and ranchers who file on Schedule F can use gross income instead of net. Loans can be recalculated if it would result in a larger loan. This applies to all PPP loans unless the loan has already been forgiven.

Borrowers who returned all or part of their original loans may reapply for the difference if they have not received forgiveness.

Borrowers whose loan amount was impacted by changing guidance can modify their loan amount even if the loan has been fully disbursed.

Guidance from the SBA is expected very soon, so check back for updates to the above.

PPP Loan Forgiveness

A PPP loan (or PPP-2 loan) can be all or partially forgiven to the extent that proceeds were used to pay eligible expenses. At least 60% of the eligible expenses must be for payroll costs and the remaining 40% for eligible non-payroll costs.

Payroll Costs

Payroll costs include salaries and wages and certain benefits costs including group life, disability, vision and dental insurance.

Eligible Non-Payroll Costs

• Mortgage interest
• Rent
• Utilities
• Worker protection expenditures such as personal protection equipment and costs to comply with COVID-19 federal health and safety guidelines
• Expenditures to a supplier that are essential to the company’s current operations
• Operations expenditures such as software, cloud computing and other HR or accounting costs
• Covered property damage costs related to 2020 public disturbances not covered by insurance or other compensation.

Simplified Forgiveness

There is a provision for simplified loan forgiveness for loan amounts up to $150,000. Applicants for simplified forgiveness will need to sign and submit a one-page form:

• Attest to complying with PPP requirements
• The Loan amount
• The number of employees retained
• Estimate of loan amount spent on payroll

There will also be a requirement to retain records up to four years for employment costs and three years for other. It is very important to assemble and retain good documentation.

You may be required to document a substantial loss of revenue. It is unclear at the moment what forms of documentation will be required.

Timing

The law contains deadlines for the various regulatory groups to issue forms and guidance. As noted above, IFRs were released last night (January 6, 2021). Forms and additional guidance is expected to be relased over the next few days. My best guess is that the SBA will begin accepting applications mid-January.

I hope the above is informative. I will endeavor to keep it current as guidance and forms are issued so please check back. As always, you can subscribe to be notified when updates are issued.

Some Helpful Links

The Small Business Administration has a webpage dedicated to coronavirus funding options. It is a great resource for those who want to know more about SBA lending.

The IRS has also has a webpage dedicated to tax relief for businesses and tax-exempt entities.