646.970.0610
February 26, 2021 | By Patrick T. McCloskey
This post has been updated to reflect the FAQs published by the SBA on April 23, 2021, which were substantially revised on such date.
With New York City’s theatre industry suffering from a prolonged Covid-19 hiatus since March 2020, there is finally a federal stimulus program specifically directed at the performing arts.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, signed into law on December 27, 2020 (the “Economic Aid Act”), includes a $15 billion1 shuttered venue operator grant program
(“SVOG Program”)2 for eligible persons and entities,3
including live venue operators or promoters, theatrical producers4 and talent representatives5 that satisfy the applicable criteria. The SVOG Program will be administered by the US Small Business Administration (“SBA”), which has published a series of FAQs.6
Grants under the SVOG Program (“SVOGs”) will not be subject to federal income tax7 and those who were severely affected by the Covid-19 pandemic will be given an early preference,8 a feature that should favor NYC theatre industry constituents.
Applications for SVOGs reopened on April 26, 2021.9 According to the SBA, applicants will need to register in the federal government’s System for Award Management (SAM), which first requires a Dun and Bradstreet (DUNS) number.10 Accordingly, as initial steps, interested parties should obtain a DUNS number and then register with the SAM as soon as possible (the SBA has indicated that SAM registration may take up to two weeks once submitted)
As further explained herein, certain eligibility and preference criteria depend upon the monthly revenues of the applicable business during 2019 and 2020 and the number of full-time employees, so interested applicants should also gather financial statements for these periods and applicable employee records so they can be submitted with the application in short order.11 The SBA has published an Application Checklist and an Applicant User Guide that should be helpful for prospective applicants.
As an additional resource for interested applicants, the New York City Department of Small Business Services and the Mayor’s Office for Media and Entertainment are offering free application assistance through a program called Curtains Up NYC.
Care should be exercised when completing an application because denials cannot be appealed.12 SVOG applications may be rejected where an applicant:13
No penalties will be imposed for any ineligible person or entity whose SVOG application was submitted in good faith, but those who make material misrepresentations as part of a fraudulent effort to obtain SVOG funding “will have committed an act of perjury and be subject to various civil and criminal penalties, as well as potentially being debarred from doing business with the federal government.”15
General eligibility
The eligibility criteria for SVOGs are extremely complex, but the basic threshold qualifications for a live venue operator or promoter, theatrical producer or talent representative are:
it must have been fully operational as of February 29, 2020;16 and
it must have suffered a 25% or greater reduction in gross earned revenue17 during any of the first, second or third calendar quarter of 2020, in each case as compared to the corresponding quarter in 2019.18
For SVOG Program purposes, the SBA has defined a promoter as:
[A]n entity or individual that organizes live events by performing artists and carries out tasks (other than as a vendor or service provider) such as renting a performance site, contracting with artists or a production company for the performance, marketing events, and collecting gate receipts. A promoter must have (1) a profit (net income or loss) interest in the live event’s presentation; and (2) sole or joint rights to control the financial terms of the live event’s presentation, use of the venue, and/or marketing of the event. Promoters may own and/or operate live venues or contract for space and may include festival promoters or the promotion of live performing arts events at outdoor, festival spaces that have all the required characteristics of a qualifying venue.19
The SBA has also defined theatrical producer under the SVOG Program:
[A]n eligible individual or entity (including the entity that employs the performers in a theatrical production) which has the responsibility for creating, producing, or operating live theatrical productions and that have either a non-passive profit (net income or loss) interest in a theatrical production (other than as a vendor or service provider) or sole or joint rights to control a theatrical production. Theatrical producers are responsible for functions such as negotiating debt or equity financing with lenders or investors, financial and tax reporting, and closing the production. The term “theatrical producer” does not include individuals or entities that provide financial support for a theatrical production without either a non-passive profit (net income or loss) interest or the control described above.20
On March 12, 2021, the SBA finally defined talent representative under the SVOG Program:
[A]n agent or manager for whom no less than 70% of their business operations (as measured with reference to their overall revenues, costs, devotion of time, contracts, and other indicia of business activity) involves the representation or management of two or more artists or entertainers. These operations must involve booking or representing musicians, comedians, actors, or similar performing artists primarily at live events staged in venues or at festivals in exchange for compensation founded on the number of tickets sold or a similar basis (including flat fee guarantees).21
An agricultural fair or party boat/pleasure cruise that features concerts is not eligible for an SVOG because its principal business activity is something other than that specified in the Economic Aid Act, but a cruise ship can count as a qualifying venue if it satisfies the criteria (see below).22
The SBA clarified that promoters and talent representatives that operate as sole proprietors or single-member LLCs with no employees could be eligible for an SVOG.23 In such a case, the promoter or talent representative would use its SVOG funding for non-payroll costs such as rent, utilities, scheduled debts, maintenance fees and taxes.24
Venue characteristics
The SVOG Program requires that venues related to the business of a live venue operator or promoter, theatrical producer or talent representative have certain specific characteristics,25 including:
a defined performance and audience space;26
mixing equipment,27 a public address system,28 and a lighting rig;29
the engagement of one (1) or more individuals to carry out at least two of the following roles:30
paid ticket or cover charges for most performances and a requirement that the artists be paid fairly36 without having to perform for free or solely for tips;37 and
the marketing of performances through listings in printed or electronic publications, on websites, by mass email, or on social media.
According to the SBA, wedding event venues, sports stadiums and restaurants featuring live music are unlikely to satisfy the above referenced criteria, but dinner theatres and performing arts centers owned or operated by a government or state college may satisfy them.38
According to the SBA, a theatrical producer, promoter or talent representative is eligible so long as a majority of the venues where it stages productions or books/represents artists satisfy the venue criteria.39 However, with respect to a live venue operator or owner, each venue included in its application apparently must qualify.40
Disqualifying characteristics
A live venue operator or promoter, theatrical producer or talent representative is disqualified from the SVOG Program if it has (or if it is majority-owned or controlled by an entity that has)41 any of the following characteristics:42
a public company with securities listed on a national securities exchange;
more than 10% of 2019 gross revenue coming from federal funding, excluding disaster assistance;43
ownership in more than one country, and ownership in more than 10 states, and more than 500 full-time employees44 as of February 29, 2020;45
it presents live performances or sells products or services of a prurient sexual nature (subject to an exception for de minimis gross revenue of 5% or less);
five other firms with which it is affiliated have already received SVOGs; or
it is a museum and other museums with which it is affiliated have already received $10 million in SVOG funding.
The SBA has also indicated that a firm otherwise eligible for an SVOG will be disqualified if “[i]t does not have a principal place of business 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.”46 Notwithstanding this restriction, eligible entities in Puerto Rico and any other territory or possession of the United States (e.g., Guam, American Samoa, the U.S. Virgin Islands) are eligible to apply for an SVOG.47
The receipt of a PPP loan on or after December 27, 2020 was removed as a disqualifying characteristic when the Economic Aid Act was recently amended by the American Rescue Plan Act of 2021 on March 11, 2021.48 As a result of that change, any such PPP loan will result in a dollar-for-dollar reduction of an SVOG (regardless of whether all or any portion of the PPP loan was forgiven), but will not disqualify the applicant.49 However, if a 2021 PPP applicant is approved for an SVOG before the SBA issues a loan number for the PPP loan, then the applicant is ineligible for the PPP loan and acceptance of any PPP loan proceeds will be considered an unauthorized use.50
An otherwise eligible applicant that entered a bankruptcy reorganization under Chapter 11 or Chapter 13 after February 29, 2021 may apply for any SVOG, but such entities may be subject to special restrictions or requirements, in the SBA’s discretion, to reduce the risk of loss of taxpayer funds.51
SVOG amounts and limits
Assuming eligibility, a live venue operator or promoter, theatrical producer or talent representative that was in operation as of January 1, 2020 can qualify for an initial SVOG equal to 45% of its 2019 gross earned revenue.52 For those eligible that began operations after January 1, 2020, the initial grant calculation is six times (6x) the average monthly gross earned revenue during 2019, with each full month of operation in 2019 used in the calculation.53 In both cases the initial SVOG amount is subject to the $10 million SVOG cap (see below).54
Although the SBA initially indicated an applicant could use either the calendar year or fiscal year, the FAQs published on April 23, 2021 indicate that the 2019 calendar year must be used.55 The amount of earned revenue will be analyzed/reported net of sales tax, returns, and post-sale discounts.56 Undivided revenues and expenses of affiliates who are separately applying for an SVOG may be allocated if the method of allocation is reasonable and well-documented.57
Any initial SVOG recipient that experiences a 70% or greater reduction in revenue58 during its most recent calendar quarter (when compared to the comparable quarter in 2019)59 due to Covid-19 can qualify for a supplemental SVOG equal to 50% of its initial grant, subject to the $10 million cap (see below).60
The SBA has indicated that SVOGs may be disbursed in one lump sum or multiple payments, depending upon the size of the award and other risk factors.61 As a general matter, the SBA has stated that SVOGs under $1 million will be disbursed in one or two installments and SVOGs for amounts larger than that will be disbursed in two to four installments.62 Installment payments will be scheduled based upon the submission of documentation of the SVOG recipient’s use of the initial fund disbursement and their 2020 tax return.63
Affiliates and successors
No initial or supplemental SVOG can result in the eligible person or entity receiving more than $10 million under the SVOG Program,64 but each applicant that independently satisfies the qualification criteria and does not possess any of the disqualifying characteristics will be treated by the SBA as an independent, unaffiliated entity, subject to an initial SVOG limit of five (5) business entities of an eligible person or entity under the SBA’s affiliation rules.65 As a result, up to five (5) affiliated business entity applicants (e.g., one parent and four subsidiaries) can qualify for separate initial SVOGs under the SVOG Program, each with its own $10 million limit.66
Eligible businesses that were acquired are not disqualified so long as the successor applicant does not have any disqualifying characteristics and the transferred entity was operational and eligible as of February 29, 2020.67 In these situations the SBA will consider the new owner to have stepped into the shoes of the prior owner for SVOG qualification purposes.68 Although the SBA initially indicated that, a seller/predecessor entity’s ineligibility (e.g., owned by a stock exchange-listed company) would render the buyer/successor applicant ineligible, it has since reversed that position.69 Legal status changes effectuated by an owner after the February 29, 2021 deadline would not be treated as permitted ownership changes of eligible entities after that date.70
Use of SVOG funds
SVOG funds can only be used to pay the following specified expenses during the period commencing on March 1, 2020 and ending on December 31, 2021 (for recipients of supplemental SVOGs, the end date is June 30, 2022):71
The SBA has indicated that refunds to customers still holding tickets to cancelled performances qualify as a permissible use of SVOG funds.78 In addition, SVOG funds can apparently be used to reimburse SVOG grantees for allowable expenses paid as far back as March 1, 202079 and depreciation is an allowable expense under SVOG.80 SVOG funds may also be used to pay artist deposits and guarantees.81
In situations where affiliates share costs or expenses, only the portion of the shared cost or expense that is paid by the grantee entity can be paid for with SVOG funds.82
SVO Grant funds may not be used:83
Any SVOG funds that are not used within one (1) year of receipt must be returned to the SBA, except that supplemental SVOG recipients have 18 months to use both initial and supplemental SVOG proceeds.85
No federal income tax
SVOG funds are not subject to federal income tax, and no deduction or increase in basis will be denied by such exclusion from gross income.86
Early preferences and priority
As mentioned above, there are priority requirements in the SVOG Program that give an early preference to those severely affected. Specifically, initial SVOGs during the first two weeks of the SVOG Program are limited to eligible persons and entities who suffered a 90% or greater decline in revenue87 between April and December of 2020 when compared to the corresponding period in 2019.88 Similarly, initial SVOGs during the second two weeks of the SVOG Program are limited to eligible persons and entities who suffered a 70% or greater decline in revenues between April and December of 2020 when compared to the corresponding period in 2019.89 Revenue losses for priority qualification purposes are based on “gross revenue,”90 not “gross earned revenue.”91
The SBA may not award more than 80% of the SVOG Program’s $15 billion total during the initial 28-day period.92
The SVOG Program also has a priority feature intended to give a preference to smaller applicants. At least $2 billion of the SVOGs during the initial 60-day period must be awarded to persons or entities that have not more than 50 full-time employees.93 .
Certification of need
An eligible person or entity applying for an SVOG must submit a good faith certification that the uncertainty of current economic conditions makes necessary the grant to support its ongoing operations.94
Additional certification for larger employers
SVOG applicants with between 500 and 10,000 employees must certify in good faith that they will (i) not abrogate existing collective bargaining agreements during the SVOG term and for two years thereafter and (ii) remain neutral in any union organizing effort throughout the term of the SVOG.95
Document retention
The SBA is required to increase oversight over SVOG recipients, which may require such recipients to retain employment records for four (4) years following receipt of an SVOG and other records for three (3) years following receipt of an SVOG.96
Other oversight and audits
The SBA may also conduct reviews and audits of the use of SVOGs and, in the case of fraud or noncompliance, may require repayment or pursue legal action to collect the funds.97
The SVOG Program also requires the SBA to submit its policies and procedures for conducting audits and reviews, as well as the metrics to be used to conduct such audits, to the Senate and House Committees on Small Business by mid-February 2021.98 The SBA must also submit certain monthly reports to such committees with respect to SVOGs, active investigations and audits, as well as findings of fraud or other material noncompliance.99
____
This post is for general informational purposes only and does not constitute legal advice. No one should rely on the information in this blog post without seeking appropriate legal, accounting, tax or other appropriate advice from an attorney, accountant or other professional properly licensed in the applicable jurisdiction(s).
This post is current as of the date hereof and does not reflect any regulations or guidance that may be subsequently promulgated or published. This post is qualified in its entirety by (i) the full text of the Hard-Hit Small Businesses, Nonprofits, and Venues Act, as amended; (ii) any regulations promulgated thereunder and (iii) any SBA guidance published with respect thereto.
1Under Section 5005(a) of the American Rescue Plan Act of 2021, there was an additional $1.25 billion conditionally appropriated to carry out the SVOG Program, $500,000 of which is to be used to provide technical assistance to help applicants access the System for Award Management (SAM) or to assist applicants with an alternative grant system. According to the SBA, “[t]he total combined amount will be apportioned in accordance with the statutory scheme: 80% will be allocated to the first and second priority periods with the remainder reserved for the non-priority period. In addition, the SBA will set aside at least $2 billion for SVOGs to small employers.” See SBA SVOG FAQs—Application, at 19 (FAQ 34).
2See Section 324 of Title III of the Consolidated Appropriations Act, 2021.
3While this post focuses on live venue operators or promoters, theatrical producers, and talent representatives, the SVOG Program has four separately defined categories of eligible persons or entities, each with its own eligibility criteria and qualifications: (1) a “live venue operator or promoter, theatrical producer, or live performing arts organization operator”; (2) a “motion picture theatre operator”; (3) a “relevant museum operator”; and (4) a “talent representative.” See Economic Aid Act §§ 324(a)(3), (4), (7) & (10). As described further herein, the SBA has specifically defined the terms “promoter”,“theatrical producer” and “talent representative” for SVOG Program purposes. If an entity qualifies under two different categories, the SBA recommends picking the one that gives the strongest case for eligibility. See SBA SVOG FAQs—Eligibility—All Applicants, at 6 (FAQ 28).
4Subject to the satisfaction of additional qualifying criteria, a live venue operator, live venue promoter, or theatrical producer is eligible under the SVOG Program if its principal business activity is to organize, promote, produce, manage or host live theatrical productions or other events by performing artists. See Economic Aid Act § 324(a)(3)(A)(i)(I). An entity’s principal business activity will be “the one in which it has the greatest combined amount of revenues, expenses, employees and work hours, assets, contracts, and other business activity as compared to all its other lines of business” for the most recently completed fiscal year. See SBA SVOG FAQs—Definitions, at 39 (FAQ 25). Where an eligible entity has multiple lines of business that are essentially tied regarding their share of the entity’s overall business activity, they will all be deemed its principal business activities. See SBA SVOG FAQs—Application, at 22 (FAQ 60). The additional qualifying criteria for a live venue operator, live venue promoter or theatrical producer to qualify under the SVOG Program include: (a) ticket or cover charges applying to the performances; (b) performers being paid based upon a percentage of sales, a guaranteed amount (set forth in writing or by standard contract), or another mutually beneficial formal agreement; and (c) at least 70% of the applicant’s earned revenue that is related to the live events being generated through ticket sales, cover charges, production fees or production reimbursements, nonprofit educational initiatives, or the sale of event food, beverages or merchandise. See Economic Aid Act § 324(a)(3)(A)(i). See also SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 12 (FAQs 19 & 20). Even if the above referenced criteria are not satisfied, a live venue operator, live venue promoter or theatrical producer can alternatively qualify under the SVOG Program if (i) as a principal business activity, it makes tickets available for purchase by the public an average of at least 60 days in advance; and (ii) the performers are paid in the manner described above. See Economic Aid Act § 324(a)(3)(A)(ii). The SBA has taken the position that ticket brokers and resellers do not qualify under this second category because their transactions are resales in the aftermarket and performers are not paid from such transactions. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 10-11 (FAQ 11). In the SBA’s opinion, air shows do not constitute a performing art and therefore air show operators do not qualify as live venue operators or promoters under the SVOG Program. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 10 (FAQ 6). Free music festivals that earn revenue through merchandise and concessions, but do not charge admission are not eligible. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 11 (FAQ 17). Performing arts groups such as choirs and dance companies may be eligible if they meet the definition of performing arts organization operator and satisfy the eligibility criteria. See SBA SVOG FAQs—Eligibility—All Applicants, at 7 (FAQ 33).
5A talent representative is eligible under the SVOG Program if: (a) it is an agent or manager that books or represents musicians, comedians, actors, or similar performing artists primarily at live events in venues or at festivals; (b) such performing artists are paid based on the number of tickets sold or a similar basis; and (c) at least 70% of the operations of the applicant consists of the representation or management of such artists and entertainers. See Economic Aid Act § 324(a)(10). A talent representative that satisfies these criteria is eligible under the SVOG Program even if it does not operate a live venue. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 10 (FAQ 10).
6Unless otherwise noted, references in this post to the SBA’s FAQs on the SVOG Program (the “SBA SVOG FAQs”) are references to the version published by the SBA on April 23, 2021.
7See Section 278(d) of Title III of the Consolidated Appropriations Act, 2021. See also SBA SVOG FAQs—Application, at 17 (FAQ 21).
8See Economic Aid Act § 324(b)(2)(B). SVOGs during the early preference period and thereafter will be processed in the order in which the applications are received. See SBA SVOG FAQs—Prioritization, at 23 (FAQ 6). (“Within each priority period and the non-priority period, the SBA will process applications in the order in which they were received.”) The SBA has indicated that government-owned eligible entities do not qualify for the early priority periods. See SBA SVOG FAQs—Prioritization, at 23 (FAQ 5).
9The application portal was initially opened on April 8, 2021, but was suspended shortly thereafter for technical glitches. The SBA has indicated that non-priority applicants need not wait to submit their applications and encourages applicants to apply as soon as they can so they can “establish their position in the queue.” See SBA SVOG FAQs—Application, at 20 (FAQ 42).
10See SBA SVOG FAQs—Application, at 14 (FAQ 2) (“SVOG applicants need to register with the federal government’s SAM at www.SAM.gov to apply and cannot use an ITIN, EIN, or other means of identification or registration. Interested parties are encouraged to obtain a Dun and Bradstreet (DUNS) number (a prerequisite for SAM registration) as soon as possible. With a DUNS number, interested parties then should immediately begin registering in SAM.gov, as the SAM registration may take up to two weeks once submitted.”) The SAM registration does not need to be activated in order to apply, but the applicant must attest that it has submitted its SAM registration. See SBA SVOG FAQs—Application, at 14 (FAQ 5).
11See SBA SVOG FAQs—Application, at 13 (FAQ 1). Audited financial statements are generally not required for an application, but should be included with an application if they exist. See SBA SVOG FAQs—Application, at 16 (FAQ 16). The SBA will exclude personally identifiable information (such as social security numbers) and confidential business information (such as financial data) from FOIA requests, but such information may be shared with federal agencies in response to proper and official requests. However, certain SVOG recipient information must be reported in the publicly searchable database USASpending.gov. The SBA recommends marking any confidential business information submitted as such. See SBA SVOG FAQs—Application, at 17 (FAQ 20). The SBA has provided guidance on the type of information that will suffice as evidence that criteria are satisfied in specified circumstances. See SBA SVOG FAQs—Application, at 17-20 (FAQs 23-45). Each part of the budget section of the SVOG application must be completed to advance to the next step. See SBA SVOG FAQs—Application, at 18 (FAQ 30). While grant policies require prior approval for shifting funds among approved cost categories by more than 10% or shifting costs to a category not included in the approved budget, the SBA has expressed a willingness to liberalize this policy for the SVOG Program. See SBA SVOG FAQs—Use of Funds, at 27 (FAQ 22). The SBA SVOG FAQs include other technical tips on completing the SVOG application. See SBA SVOG FAQs—Application, at 17-22 (FAQs 23-61).
12See SBA SVOG FAQs—Application, at 15 (FAQ 11). The SBA has indicated that applicants will be able to save applications in progress prior to submission, but incomplete applications may not be submitted. See SBA SVOG FAQs—Application, at 16 (FAQs 17 & 18).
13See SBA SVOG FAQs—Application, at 15-16 (FAQ 13).
14See also Note 65, infra.
15See SBA SVOG FAQs—Application, at 15 (FAQ 12).
16See Economic Aid Act § 324(a)(1)(A)(i)(I). Otherwise eligible applicants that were not operational in 2019 will only qualify if they earned revenue during the first quarter of 2020 from sources such as advance ticket sales and merchandising. See SBA SVOG FAQs—Application, at 16 (FAQ 14). Live venue operators or promoters, theatrical producers or talent representatives that were fully operational as of February 29, 2020 but shut down during the Covid-19 pandemic are still technically eligible so long as they reopen or, in the case of live venue operators or promoters, intend to reopen, as of the date of grant. See Economic Aid Act §§ 324(a)(1)(A)(ii)(I) & (IV). See also SBA SVOG FAQs—Application, at 18 (FAQ 31). Venues operating in an online-only shows capacity will be considered currently in business if the entity meets the eligibility for business operations prior to February 29, 2020. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 11 (FAQ 18).
17Earned revenue or gross earned revenue means “[t]he total of earned revenue monies received from various sales of goods or services, such as admission tickets, merchandise, food and beverages, advertising and contracted presentation income. Earned revenue does not include other sources of funds that an organization may receive, such as donations, governmental assistance, or returns on investments.” See SBA SVOG FAQs—Definitions, at 40 (FAQ 29-a). However, gross earned revenue from all sources must be included (even for business lines not covered by the SVOG Program). See SBA SVOG FAQs—Revenue, at 30 (FAQ 8). As examples, rental income from longer-term tenants and from short term rentals for event hosting qualifies as gross earned revenue, as do tuition payments for a dance school that operates a live venue. See SBA SVOG FAQs—Revenue, at 30-31 (FAQs 7 & 9).
18See Economic Aid Act § 324(a)(1)(A)(II). A greater than 25% decrease in gross earned revenue during the fourth calendar quarter of 2020 will only satisfy this criterion for SVOG applications submitted after January 1, 2021. Id.. However, an applicant that was not in operation in 2019 could satisfy this criterion with an application earlier than that date if it demonstrates a greater than 25% decrease in gross earned revenue during the second, third or fourth quarter of 2020 as compared to the first quarter of 2020. See SBA SVOG FAQs—Application, at 16 (FAQ 14).
19See SBA SVOG FAQs—Definitions, at 39-40 (FAQ 26).
20See SBA SVOG FAQs—Definitions, at 41 (FAQ 36).
21See SBA SVOG FAQs—Definitions, at 40-41 (FAQ 35). Among other things, a talent representative must provide with the applicable application: (i) a list of performing artists they booked or managed in 2019 that includes the venues, locations and performance dates; (ii) a current roster of performing artists which they book or manage (which must appear on the applicant’s website and be published in print or online in “an industry-recognized trade publication registry”; (iii) fully executed contractual service agreements with two artists or signed statements from two artists certifying that the applicant represented them for live performances in 2019 and 2020; and (iv) fully executed contracts for live performances that took place in a venue or at a festival in 2019 and 2020 for two artists the applicant managed or booked. See SBA FVOG FAQs—Talent Representatives, at 13 (FAQ 3). Talent representatives can be agents and/or managers for musicians, comedians, actors, or similar performing artists. See SBA SVOG FAQs—Eligibility—Talent Representatives, at 13 (FAQ 1).
22See SBA SVOG FAQs—Eligibility—All Applicants, at 5 (FAQ 22). See also SBA SVOG FAQs—Eligibility—All Applicants, at 6 (FAQ 26).
23See SBA SVOG FAQs—Eligibility—All Applicants, at 7 (FAQ 34).
24Id.
25See Economic Aid Act § 324(a)(1)(A)(iii). Eligible entities must use qualifying venues for the majority of the events it stages or books clients into, but non-qualifying venues may also be used. See SBA FAQs —Eligibility—All Applicants, at 6 (FAQ 27). There are separate venue requirements that specifically apply to motion picture theatres, relevant museums and non-profit entities that produce free events.
26For a live venue operator or promoter: (i) a “defined performance space” means “the distinct physical space reserved solely for the presentation of a performance, such as drama, music, dance, comedy, or other live performing arts activity”; and (ii) a “defined audience space” means “the distinct physical area in which the audience experiences the performance for qualifying venues that host live performing arts events (not including museums and movie theatres). See SBA SVOG FAQs—Definitions, at 37 (FAQs 7 & 8).
27As a requirement for a live venue operator or promoter, “mixing equipment” is defined as “a sound mixer that mixes two or more audio signals together, provides one or more output signals, allows adjustment of levels and enhancement of sound with equalization and effects, and creates monitor feeds.” See SBA SVOG FAQs—Definitions, at 38 (FAQ 17).
28As a requirement for a live venue operator or promoter, “public address system” is defined as “an electronic system with at least one microphone, amplifier, and loudspeaker which increases the volume of a human voice, musical instrument, or other acoustic sound source or recorded sound or music.” See SBA SVOG FAQs—Definitions, at 39-40 (FAQ 27).
29As a requirement for a live venue operator or promoter, “lighting rig” is defined as “a structure that holds lights in place for illuminating a stage or other defined performance space.” See SBA SVOG FAQs—Definitions, at 38 (FAQ 15).
30The hiring of individuals as 1099 contractors for these positions (instead of W-2 employees) should not disqualify an otherwise eligible applicant, but the use of a subcontractor to fill these roles will result in disqualification. See SBA SVOG FAQs—Eligibility—All Applicants, at 5 (FAQ 21). (“Are service and support companies that provide stages, lighting, sound, casts, and other support for live performing arts events or which showcase performers or pre-packaged productions to potential buyers eligible to apply for an SVOG? No. The Economic Aid Act is designed to assist only those eligible entities identified in the statute. SVOGs are not available for service providers that support eligible entities.”)
31As a requirement for a live venue operator or promoter, “sound engineer” is defined as “an individual who helps to produce a live performance by managing or enhancing source levels of sound, including by equalization and audio effects, mixing, reproduction, and reinforcement of sound.” See SBA SVOG FAQs—Definitions, at 40 (FAQ 32).
32As a requirement for a live venue operator or promoter, “booker” is defined as “an individual (e.g. a talent buyer) who books bands or other performing artists for venues and fields inquiries from performing artists and their agents or representatives.” See SBA SVOG FAQs—Definitions, at 37 (FAQ 2).
33As a requirement for a live venue operator or promoter, “stage manager” is defined as “an individual who supervises the performance space and physical aspects of a production and oversees the performance space while a production is in progress.” See SBA SVOG FAQs—Definitions, at 40 (FAQ 33).
34As a requirement for a live venue operator or promoter, “security personnel” is defined as “individuals hired for a live event to provide protection and aid for attendees, performers, and venue employees” whose “duties may include monitoring the event, maintaining order, escorting attendees out of events, and suppressing disturbances.” See SBA SVOG FAQs—Definitions, at 40 (FAQ 31).
35As a requirement for a live venue operator or promoter, “box office manager” is defined as “an individual who is responsible for overseeing the sale of tickets or receipt of admission fees, and may include the task of ensuring the security of payments exchanged.” See SBA SVOG FAQs—Definitions, at 37 (FAQ 3). Staffing a box office with volunteers will not disqualify an otherwise eligible applicant. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 11 (FAQ 13).
36For a performer, being paid fairly “means that event performers are paid in an amount based on a percentage of sales, a guarantee (in writing or standard contract), or another mutually beneficial formal agreement” and “venues may also compensate performers by sharing an agreed upon portion of revenues received through door fees along with drink or meal tickets that may fall below 1099 reporting requirements.” See SBA SVOG FAQs—Definitions, at 39 (FAQ 22)
37With respect to a nonprofit live performing arts organization, the use of volunteers in the production casts would not result in disqualification so long as the events are produced and managed primarily by paid employees. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 11 (FAQ 15).
38See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 9-10 (FAQs 1-5). SVOG recipients are not eligible for a grant under the Restaurant Revitalization Fund. See SBA SVOG FAQs—Application, at 17 (FAQ 22).
39See SBA SVOG FAQs—Eligibility—All Applicants, at 6 (FAQ 27). See also SBA SVOG FAQs—Eligibility—Talent Representative, at 13 (FAQ 2). This latter FAQ appears to cover promoters as well (“[t]he SBA has interpreted the Economic Aid Act to require a promoter, theatrical producer, live performing arts organization, or talent representative to use qualifying venues for a majority of the events for which they book or represent artists.”)
40See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 12-13 (FAQ 25).
41Although the statutory language in the Economic Aid Act is disjunctive (see Economic Aid Act §§ 324(a)(1)(A)(vi)(I) & (II)), the SBA initially indicated that it “defines majority ownership and control to mean that at least 51% of the ownership interests of an entity (regardless of its legal structure) are held by a single individual or entity.” This position was published by the SBA as FAQ 2 in its Definition section, but it was removed in the version published on April 23, 2021. Similarly, the language in the SBA FAQ that describes this disqualifying characteristic was changed from conjunctive to disjunctive in the April 23, 2021 version. See SBA SVOG FAQs—Eligibility—All Applicants (published on April 23, 2021), at 3 (FAQ 12); Cf. SBA SVOG FAQs—Eligibility—All Applicants (published on April 8, 2021), at 2 (FAQ 8). While the SBA’s change in guidance on this issue is consistent with the statute, it was a significant modification on a fundamental issue at the eleventh hour. Conforming changes were made to other FAQs to reflect this (see SBA SVOG FAQs—Live Venue Operator or Promoter (published on April 8, 2021), at 9 (FAQ 16) (“[t]he Economic Aid Act speaks only of majority ownership and control in the context of disqualifying conditions . . . There are no other control requirements in the statute.); Cf. SBA SVOG FAQs—Live Venue Operator or Promoter (published on April 23, 2021) (“[t]he Economic Aid Act states that a live venue operator that is majority owned or controlled by an entity . . .”) (Italics added).
42See Economic Aid Act §§ 324(a)(1)(A)(vi)(I), (II) & (III) and § 324(a)(1)(B). There are additional disqualifying characteristics that apply to an entity owned by a state or a political subdivision of a state. See e.g., SBA SVOG FAQs—Eligibility—All Applicants, at 7 (FAQ 32).
43For purposes of this criterion, “if a state government received CARES Act funding from the federal government in a lump sum and apportioned it to make grants to small businesses, those state-issued grants also would be excluded from an entity’s gross revenue.” See SBA SVOG FAQs—Revenue, at 31 (FAQ 13). If funding was provided outside of the Stafford Act or the CARES Act, it would have to be included in gross revenue. See SBA SVOG FAQs—Revenue, at 31 (FAQ 14). This restriction does not apply to government-owned entities that are otherwise eligible. See SBA SVOG FAQs—Eligibility—All Applicants, at 5 (FAQ 20).
44For purposes of this calculation, any employee working 30 or more hours per week is counted as a full-time employee and any employee working between 10 and 29 hours per week is counted as one-half a full-time employee. Employees who work less than 10 hours per week are not considered to be an employee. Although not referenced in Section 324(a)(1)(C) of the Economic Aid Act, the SBA has indicated that the calculation of full-time employees will be a 12-month average based upon each pay period between March 1, 2019 and February 29, 2020. See SBA SVOG FAQs—Business Size/Employees, at 28 (FAQ 1). The SBA “will consider the totality of the circumstances . . . in determining whether individuals are employees of a concern,” as opposed to an independent contractor. See SBA SVOG FAQs—Business Size/Employees, at 29 (FAQ 6).
45See Economic Aid Act § 324(a)(vi)(II). See also SBA SVOG FAQs—Eligibility—All Applicants, at 2 (FAQ 3).
46See SBA SVOG FAQs—Eligibility—All Applicants, at 3 (FAQ 12).
47See SBA SVOG FAQs—Eligibility—All Applicants, at 5 (FAQ 24).
48See American Rescue Plan Act of 2021 § 5005(b).
49Id. See also SBA SVOG FAQs—Eligibility—All Applicants, at 2-3 (FAQ 8). . If an SVOG applicant received PPP loans before and after December 27, 2020, then only the latter loan amount need be subtracted from the SVOG amount. See SBA SVOG FAQs—Application, at 18 (FAQ 29).
50See SBA SVOG FAQs—Application, at 18 (FAQ 29). See also SBA SVOG FAQs—Eligibility—All Applicants, at 2 (FAQs 6-7).
51See SBA SVOG FAQs—Eligibility—All Applicants, at 5 (FAQ 23).
52See Economic Aid Act § 324(c)(1)(A)(i)(I). See also SBA SVOG FAQs—Revenue, at 29 (FAQ 1).
53See Economic Aid Act § 324(c)(1)(A)(i)(II). See also SBA SVOG FAQs—Application, at 16 (FAQ 15).
54See Economic Aid Act § 324(c)(1)(A)(ii).
55See SBA SVOG FAQs—Revenue, at 31 (FAQ 11).
56See SBA SVOG FAQs—Revenue, at 31 (FAQ 12).
57See SBA SVOG FAQs—Subsidiaries & Affiliates, at 34-35 (FAQ 9). (“In allocating revenues and expenses to the separate entities the owner should consider the roles and responsibilities of each entity and the effort and other resources each contributed to the consolidated operations and ensure that any such division is reasonable and well-documented.”)
58For supplemental SVOG purposes, “revenue” means “gross revenue”, not “gross earned revenue.” See SBA SVOG FAQs—Prioritization, at 23 (FAQ 3) (“[i]n the legislation, Congress used ‘revenue’ . . . not ‘earned revenue’ and used the term ‘earned revenue’ in other areas, illustrating its understanding of a distinction between the two terms . . .”) See also Economic Aid Act § 324(b)(3)(A). The SBA’s FAQs state that “gross revenue” is functionally equivalent to ‘receipts,’ which the SBA has defined under 13 C.F.R. § 120.04 as ‘all revenue in whatever form received or accrued from whatever source’”. See SBA SVOG FAQs—Definitions, at 40 (FAQ 29b). A partner’s standard, non-passive revenue reported on IRS Schedule K-1 falls within the definition of both gross revenue and earned revenue. See SBA SVOG FAQs—Revenue, at 32 (FAQ 16). For applicants that commenced business operations and incurred costs in 2020, revenue that was refunded due to closures and cancellations brought about by the pandemic may be included in both gross revenue and earned revenue. See SBA SVOG FAQs—Revenue, at 32 (FAQ 17). Gifts or contributions of any type must be included in gross revenue. See SBA SVOG FAQs—Revenue, at 32 (FAQ 19). The SBA has addressed numerous specific questions related to revenue, including a clarification that no SVOG application should include revenues that are also included on another SVOG application. See SBA SVOG FAQs—Revenue, at 32-33 (FAQs 21-26).
59Seasonally-operated entities are permitted to compare earned revenues in the second quarter of 2021 to earned revenues in the second quarter of 2019. The references to earned revenues in the foregoing FAQ are apparently in error, since eligibility for supplemental grants is based upon gross revenue. See Note 58, supra. See also SBA SVOG FAQs—Supplemental Phase, at 36 (FAQ 2). See also SBA SVOG FAQs—Eligibility—All Applicants, at 24 (FAQ 8).
60See Economic Aid Act § 324(c)(2). The SBA is not permitted to make any supplemental SVOGs until it has completed processing all initial SVOG applications submitted during the initial 60-day period. See Economic Aid Act § 324(b)(3)(B). If all funds under the SVOG Program are exhausted during this period, the SBA is considering issuing zero dollar “placeholder” awards that could eventually be used if additional funding under the SVOG Program becomes available. See SBA SVOG FAQs—Supplemental Phase, at 36 (FAQ 1). Applications for supplemental SVOGs must be submitted separately after the initial phase and may not be included in an application for an initial SVOG. See SBA SVOG FAQs—Supplemental Phase, at 36 (FAQ 3).
61See SBA SVOG FAQs—Use of Funds, at 25-26 (FAQ 15). Even where an SVOG is disbursed in installments, the full amount will be committed at the time of the award to ensure that each SVOG is fully funded. See SBA SVOG FAQs—Application, at 16-17 (FAQ 19). Similarly, the use period will run from the date the SVOG is issued (not the date of any subsequent installment) unless there is an extension. See SBA SVOG FAQs—Use of Funds, at 26 (FAQ 19).
62See SBA SVOG FAQs—Use of Funds, at 25-26 (FAQ 15).
63Id.
64See Economic Aid Act § 324(c)(3).
65See Economic Aid Act § 324(b)(2)(D). See also SBA SVOG FAQs—Subsidiaries & Affiliates, at 33-34 (FAQs 1 & 4).See also SBA SVOG FAQs—Subsidiaries & Affiliates, at 35 (FAQ 10). (“Any applications received above the five affiliated-entity limit will be rejected without being evaluated. Under this scenario, however, where an affiliated eligible entity’s application is evaluated and declined, another affiliated eligible entity could then apply.”) The SBA will only consider two applicants to be affiliated for purposes of the SVOG Program where one firm owns more than 50% of the other or if a single person or entity owns more than 50% of both. See SBA SVOG FAQs—Subsidiaries & Affiliates, at 35 (FAQ 12). Sister companies that are affiliated may not jointly apply unless the parent is included in the application. See SBA SVOG FAQs—Subsidiaries & Affiliates, at 35 (FAQ 13). (“While affiliates may apply . . . in their own name . . . or may be included in an application submitted by their ultimate parent entity, they cannot team up together on an application unless one of the firms owns more than 50% of the other.”) See also SBA SVOG FAQs —Eligibility—Live Venue Operator or Promoter, at 12 (FAQ 23) (“Because neither LLC owns the other, neither LLC could be bundled into an SVOG award held by the other. However, if the individual or entity which owned the two LLCs received an SVOG award under its own name, they could include the revenues and costs of both LLCs in a combined grant.”)
66See SBA SVOG FAQs—Subsidiaries & Affiliates, at 34 (FAQ 4). Consolidating tax returns do not negate this flexibility. See SBA SVOG FAQs—Subsidiaries & Affiliates, at 34 (FAQ 8). This flexibility does not, however, apply to so-called relevant museum operators. See Economic Aid Act § 324(c)(1)(B). See also SBA SVOG FAQs—Application, at 19 (FAQ 38). Except for tribal, state or local government-owned eligible entities, each entity applying for an SVOG must use its own SAM registration. See SBA SVOG FAQs—Subsidiaries & Affiliates, at 36 (FAQ 16).
67See SBA SVOG FAQs—Application, at 15 (FAQ 10).
68Id.
69See SBA SVOG FAQs—Eligibility—All Applicants, at 7 (FAQ 37).
70See SBA SVOG FAQs— Eligibility—Museum or Movie Theatre Operator, at 9 (FAQ 9). This FAQ was published under the subheading for the eligibility for Museums and Movie Theatre Operators and it is unclear whether it applies to other types of applicants.
71See Economic Aid Act §§ 324(d)(2)(B) and 324(d)(1)(A). Payroll costs, covered rent obligations, covered utility payments and covered worker expenditures have the definitions given to such terms under the PPP. See Economic Aid Act §§ 324(d)(2)(A)(i) & (ii).
72Owner compensation, including distributions and dividends, are payable using SVOG funds so long as the total amounts involved do not exceed what an owner received in compensation in 2019. See SBA SVOG FAQs—Use of Funds, at 24 (FAQ 4). Such costs are only payable or reimbursable from SVOG funds if incurred after March 1, 2020. See SBA SVOG FAQs—Use of Funds, at 27 (FAQ 25). Although not directly addressed by the SBA in the context of the SVOG Program, since “payroll cost” has the definition given under the PPP, the use of SVOG funds to pay owner compensation is likely subject to a $100,000 annual limit. See 15 USC § 636(a)(36)(A)(viii)(I)(bb). SVOG funds cannot be used to pay any portion of an employee’s salary covered by an employee retention tax credit (ERTC). See SBA SVOG FAQs—Use of Funds, at 25 (FAQ 9). After initially indicating that SVOG funds may not be used to make employees whole for temporary reductions in pay during the pandemic, the SBA reversed this position. See SBA SVOG FAQs—Use of Funds, at 26 (FAQ 18).
73This includes reimbursement to an owner who loaned the business money to keep employees paid and operating expenses paid, so long as the loan was made on commercially reasonable terms and was formally documented as a standard, ordinary debt instrument. Without proper documentation, claimed owner reimbursements will be treated as compensation or distribution of profits. See SBA SVOG FAQs—Use of Funds, at 24 (FAQ 3). Use of SVOG funds to pay debt service on loans that were recorded prior to February 15, 2020 but refinanced or consolidated with other debt after that date is permitted as allowable expenses solely to the extent of the original qualifying debt. See SBA SVOG FAQs—Use of Funds, at 24 (FAQ 6). SVOG funds can be used to repay lines of credit or revolving loans drawn upon after February 15, 2020 so long as the applicable line of credit or revolving loan was recorded prior to such date, with repayment on any increase in the line or revolver after such date being an ineligible expense. Id. This category includes qualifying payments on SBA-backed loans. See SBA SVOG FAQs—Use of Funds, at 26 (FAQ 17). Credit card payments are not considered scheduled debt payments, but individual credit card charges that relate to allowable expenses (i.e. utility payments, worker protection expenditures etc.) incurred during the requisite period may be paid or reimbursed from SVOG funds. See SBA SVOG FAQs—Use of Funds, at 27 (FAQ 24).
74Worker protection expenditures are defined as “an operating or capital expenditure which helps an entity adapt its business activities to comply with guidance or requirements issued by a Federal, state, or local health authority related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to the Covid-19 pandemic.” See SBA SVOG FAQs—Definitions, at 41 (FAQ 37). This includes improvements to bathrooms/HVAC systems. See SBA SVOG FAQs —Use of Funds, at 27 (FAQ 21).
75According to the SBA, ‘an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.” See SBA SVOG FAQs—Definitions, at 39 (FAQ 28)
76This includes real estate and personal property taxes on buildings and equipment, but only if such real estate and equipment is directly related to the eligible SVOG Program operations. See SBA SVOG FAQs—Use of Funds, at 25 (FAQ 7).
77The SBA has indicated that this restriction applies to “all such costs in general rather than those relating only to one specific production or show.” See SBA SVOG FAQs—Application, at 20-21 (FAQ 46).
78See SBA SVOG FAQs—Use of Funds, at 24 (FAQ 1). See also SBA SVOG FAQs—Use of Funds, at 24 (FAQ 2).
79See SBA SVOG FAQs—Use of Funds, at 24 (FAQ 5).
80See SBA SVOG FAQs—Use of Funds, at 25 (FAQ 12).
81See SBA SVOG FAQs—Use of Funds, at 25 (FAQ 14). (“Understanding that artists are typically independent contractors paid out of ticket proceeds and in many cases the proceeds are not available prior to the show closing so entities often use deposits and/or guarantees to provide prior payments to artists, the SBA believes this use of SVOG funds is authorized as an ordinary and necessary business expense.”)
82See SBA SVOG FAQs—Subsidiaries & Affiliates, at 34 (FAQ 3).
83See Economic Aid Act § 324(d)(3).
84Depositing SVOG funds in an interest-bearing bank account will not be considered an impermissible investment. In its FAQs published on April 23, 2021, the SBA indicated that an SVOG grantee must maintain advance payments in an interest-bearing account and that any interest over $500 per year must be remitted to the Department of Health and Human Services Payment Management System. See SBA SVOG FAQs—Use of Funds, at 25 (FAQ 8).
85See Economic Aid Act § 324(d)(1)(B). If the funds allocated under the SVOG Program are exhausted and the SBA issues zero dollar “placeholder” supplemental awards, the recipients will be afforded 18 months to use the SVOG funds. See also Note 60, supra.
86See Section 278(d) of Title III of the Consolidated Appropriations Act, 2021.
87For purposes of calculating revenues to evaluate early priority status: (i) amounts received under the CARES Act are excluded; (ii) the accrual method of accounting must be used; and (iii) alternative methods to establish revenue losses for a seasonal employer can be used by the SBA if the applicant would otherwise be adversely impacted. See Economic Aid Act § 324(b)(2)(B)(iii). For purposes other than qualification for a priority period, an applicant can use either the cash or accrual method of accounting. See SBA SVOG FAQs—Prioritization, at 23 (FAQ 4).
88See Economic Aid Act § 324(b)(2)(B)(i).
89See Economic Aid Act § 324(b)(2)(B)(ii).
90See SBA SVOG FAQs—Prioritization, at 23 (FAQ 2). See also Note 58, supra.
91SBA guidance on this issue has been confusing because the initial summary of the SVOG Program on the SBA’s web page, which has since been clarified, equated revenue losses for priority and supplemental SVOG purposes with revenue losses for general SVOG qualification purposes (i.e., a 25% or greater revenue loss), the latter of which is based on “gross earned revenue.” An FAQ published by the SBA on April 8, 2021 was similarly confusing (see FAQ 68 on page 28), but this FAQ was removed in the most recent April 23, 2021 publication. There remains confusion on this issue. See Notes 58 and 59, supra.
92See Economic Aid Act § 324(b)(2)(B)(iv).
93See Economic Aid Act § 324(b)(2)(E). For rules on determining full-time employee status, see Note 44, supra. For purposes of this early preference, full-time employees of an applicant’s affiliates will be included in the calculation. See SBA SVOG FAQs—Subsidiaries & Affiliates, at 33-34 (FAQ 2).
94See Economic Aid Act § 324(b)(1)(B). A sample statement of need certification is included in the SBA SVOG FAQs. See SBA SVOG FAQs—Application, at 18 (FAQ 31).
95See Economic Aid Act § 324(b)(4); see also
15 U.S.C. §§ 9042(c)(3)(D)(i)(IX) & (X). See also SBA SVOG FAQs—Application, at 18 (FAQ 32).
96See Economic Aid Act § 324(e)(1).
97See Economic Aid Act § 324(f)(2).
98SeeEconomic Aid Act § 324(f)(1).
99See Economic Aid Act § 324(f)(2).
