February 26, 2021 | By Patrick T. McCloskey
This post has been updated to reflect the enactment of the American Rescue Plan Act of 2021 on March 11, 2021 and the FAQs published by the SBA on March 22, 2021.
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 already 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 will open on April 8, 2021,9 so interested applicants should take steps to prepare. 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 a Preliminary Application Checklist 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.
An SVOG application may also be rejected if all available SVOG funding has been exhausted.
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
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.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 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,23 including:
a defined performance and audience space;24
the engagement of one (1) or more individuals to carry out at least two of the following roles:28
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.36
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)37 any of the following characteristics:38
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;39
it presents live performances or sells products or services of a prurient sexual nature;
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.”42 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.43
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, 2021.44 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.45
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.46
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.47 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.48 In both cases the initial SVOG amount is subject to the $10 million SVOG cap (see below).49
For purposes of calculating gross earned revenue, an applicant can use the calendar year or its fiscal year (but may not switch for a supplemental SVOG),50 and the amount will be analyzed/reported net of sales tax, returns, and post-sale discounts.51 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.52
Any initial SVOG recipient that experiences a 70% or greater reduction in revenue53 during its most recent calendar quarter (when compared to the comparable quarter in 2019)54 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).55
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.56 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.57 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.58
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,59 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.60 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.61
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, 2020.62 In these situations the SBA will consider the new owner to have stepped into the shoes of the prior owner for SVOG qualification purposes.63 However, a seller/predecessor entity’s ineligibility (e.g., owned by a stock exchange-listed company) will render the buyer/successor applicant ineligible if the transaction occurred (or occurs) after February 29, 2021.64 Also, 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.65
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):66
The SBA has indicated that refunds to customers still holding tickets to cancelled performances “appear” to qualify as a permissible use of SVOG funds (as a necessary and ordinary business expense).71 In addition, SVOG funds can apparently be used to reimburse SVOG grantees for allowable expenses paid as far back as March 1, 202072 and SVOG funds may be used to cover the cost of depreciation “in accordance with the principles outlined in 2 C.F.R. § 200.436.73 SVOG funds may also be used to pay artist deposits and guarantees.74
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.75
SVO Grant funds may not be used:76
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.78
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.79
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 revenue80 between April and December of 2020 when compared to the corresponding period in 2019.81 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 2019.82 Revenue losses for priority qualification purposes are based on “gross revenue,”83 not “gross earned revenue.”84
The SBA may not award more than 80% of the SVOG Program’s $15 billion total during the initial 28-day period.85
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.86 The SBA is considering using its authority under the Economic Aid Act to set-aside more than the $2 billion minimum that must be reserved for these purposes.87
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.88
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 and (ii) remain neutral in any union organizing effort.89 The SBA has not addressed this certification requirement in the FAQs and it is not clear what time periods will apply to these commitments.
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.90
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.91
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 2021.92 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.93
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.
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.”
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 9 (FAQ 1). 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—All Applicants, at 5 (FAQ 23). 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). Even if the above referenced criteria are not satisfied, a live venue operator, live venue promoter or theatrical producer can still 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 8 (FAQ 10). 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 8 (FAQ 12). 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 9 (FAQ 17).
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 8 (FAQ 9).
6References 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 March 22, 2021.
7See Section 278(d) of Title III of the Consolidated Appropriations Act, 2021. See also SBA SVOG FAQs—Application, at 16 (FAQ 23).
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—Application, at 15 (FAQ 21). (“Within each priority period and the non-priority period, the SBA will process applications in the order in which they were received.”)
9See SBA SVOG FAQs—Application, at 13 (FAQ 3) (“The SBA expects open SVOG applications on April 8, 2021. We encourage you to stay up to date by frequently visiting www.sba.gov/svogrant for information.”)
10See SBA SVOG FAQs—Application, at 12-13 (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.”)
11See SBA SVOG FAQs—Application, at 12 (FAQ 1) (“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. Next, determine the amount of gross revenue loss you experienced between 2019 and 2020 to see if you qualify for one of the priority periods. Lastly, determine the extent of gross earned revenue loss you experienced between 2019 and 2020 to see if you qualify for the non-priority period.”) Audited financial statements are generally not required. See SBA SVOG FAQs—Application, at 15 (FAQ 17). 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 15-16 (FAQ 22). 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 16-17 (FAQs 25-31).
12See SBA SVOG FAQs—Application, at 14 (FAQ 11). (“[T]he SBA will not institute an appeal process for denied SVOG applicants. Furthermore, given the potential for demand for SVOG funding to outpace supply, establishing an appeal process for denied applicants might further run the risk of tying up funding that could instead go to eligible applicants in dire need of timely assistance.”) 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 15 (FAQs 18 & 19).
13See SBA SVOG FAQs—Application, at 15 (FAQ 15).
14This rejection category includes an applicant that “is part of a group of affiliated entities that currently has five (5) active SVOG applications still pending.” Id. See also Note 60, infra.
15See SBA SVOG FAQs—Applications, at 15 (FAQ 15).
16See See 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—Eligibility—All Applicants, at 2 (FAQ 3). Although not addressed in the SBA SVOG FAQs, 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).
17Gross earned revenue only includes “monies received from the sale of goods or services” and does not include “other sources of funds such as donations, sponsorships, governmental assistance, or returns on investments.” See SBA SVOG FAQs—Revenue, at 21 (FAQ 1). 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 22 (FAQs 7 & 10). 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 22 (FAQs 9 & 11).
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—Eligibility—All Applicants, at 2 (FAQ 3).
19See SBA SVOG FAQs—Definitions, at 10 (FAQ 7).
20See SBA SVOG FAQs—Definitions, at 10-11 (FAQ 8).
21See SBA SVOG FAQs—Definitions, at 12 (FAQ 22). 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—Application, at 16 (FAQ 27).
22See SBA SVOG FAQs—Eligibility—All Applicants, at 4 (FAQ 17). See also SBA SVOG FAQs—Eligibility—All Applicants, at 5 (FAQ 24).
23See Economic Aid Act § 324(a)(1)(A)(iii). Eligible entities must use qualifying venues for the majority of the events they stages or books clients into, but non-qualifying venues may also be used. See SBA FAQs —Eligibility—All Applicants, at 5 (FAQ 25). There are separate venue requirements that specifically apply to motion picture theatres, relevant museums and non-profit entities that produce free events.
24For 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 11 (FAQs 11 & 12).
25As 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 11 (FAQ 13).
26As 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 11 (FAQ 14).
27As 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 11 (FAQ 15).
28The 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 as a “secondary service provider” will result in disqualification. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 7-8 (FAQs 6 & 7). See also SBA SVOG FAQs—Eligibility—All Applicants, at 4 (FAQ 16). (“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.”)
29As 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 12 (FAQ 16).
30As 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 12 (FAQ 17).
31As 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 12 (FAQ 18).
32As 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 12 (FAQ 19).
33As 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 12 (FAQ 20). Staffing a box office with volunteers will not disqualify an otherwise eligible applicant. See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 9 (FAQ 13).
34For 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 12 (FAQ 21)
35With 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 9 (FAQ 15).
36See SBA SVOG FAQs—Eligibility—Live Venue Operator or Promoter, at 7 (FAQs 1-5). SVOG recipients are not eligible for a grant under the Restaurant Revitalization Fund. See SBA SVOG FAQs—Application, at 16 (FAQ 24).
37See Although the statutory language in the Economic Aid Act is disjunctive (see Economic Aid Act §§ 324(a)(1)(A)(vi)(I) & (II)), the SBA has 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.” See SBA SVOG FAQs—Definitions, at 10 (FAQ 2). (Italics added). See also SBA SVOG FAQs—Live Venue Operator or Promoter, 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.) (Italics added).
38See 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 also SBA SVOG FAQs—Eligibility—All Applicants, at 2-3 (FAQ 8).
39For 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 23 (FAQ 15).
40For 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 19-20 (FAQ 1).
41See Economic Aid Act § 324(a)(vi)(II). See also SBA SVOG FAQs—Eligibility—All Applicants, at 3 (FAQ 8).
42See SBA SVOG FAQs—Eligibility—All Applicants, at 2 (FAQ 8).
43See SBA SVOG FAQs—Eligibility—All Applicants, at 4 (FAQ 19).
44See American Rescue Plan Act of 2021 § 5005(b).
45Id. See also SBA SVOG FAQs—Eligibility—All Applicants, at 4-5 (FAQs 21 & 22).
46See SBA SVOG FAQs—Eligibility—All Applicants, at 4 (FAQ 18).
47See Economic Aid Act § 324(c)(1)(A)(i)(I).
48See Economic Aid Act § 324(c)(1)(A)(i)(II). See also SBA SVOG FAQs—Application, at 15 (FAQ 16).
49See Economic Aid Act § 324(c)(1)(A)(ii).
50See SBA SVOG FAQs—Revenue, at 22-23 (FAQ 13).
51See SBA SVOG FAQs—Revenue, at 23 (FAQ 14).
52See SBA SVOG FAQs—Subsidiaries & Affiliates, at 25 (FAQ 10). (“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.”)
53For supplemental SVOG purposes, “revenue” means “gross revenue”, not “gross earned revenue.” See SBA SVOG FAQs—Application, at 14 (FAQ 9) (“[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 . . .”) 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—Revenue, at 21 (FAQ 2). 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 23 (FAQ 18). 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 23 (FAQ 19).
54Seasonally-operated entities are permitted to compare earned revenues in the second quarter of 2021 to earned revenues in the second quarter of 2019. See SBA SVOG FAQs—Supplemental Phase, at 26 (FAQ 1).
55See 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—Application, at 13 (FAQ 5). 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 26 (FAQ 2).
56See SBA SVOG FAQs—Use of Funds, at 19 (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 15 (FAQ 20).
57See SBA SVOG FAQs—Use of Funds, at 19 (FAQ 15).
59See Economic Aid Act § 324(c)(3)
60See Economic Aid Act § 324(b)(2)(D). See also SBA SVOG FAQs—Subsidiaries & Affiliates, at 24 (FAQs 1 & 4). See also SBA SVOG FAQs—Subsidiaries & Affiliates, at 25 (FAQ 12). (“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 26 (FAQ 16). Sister companies that are affiliated may not jointly apply unless the parent is included in the application. See SBA SVOG FAQs—Subsidiaries & Affiliates, at 26 (FAQ 17). (“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.”)
61See SBA SVOG FAQs—Subsidiaries & Affiliates, at 24 (FAQ 3). Consolidating tax returns do not negate this flexibility. See SBA SVOG FAQs—Subsidiaries & Affiliates, at 25 (FAQ 9). This flexibility does not, however, apply to so-called relevant museum operators. See Economic Aid Act § 324(c)(1)(B).
62See SBA SVOG FAQs—Application, at 13-14 (FAQ 8).
64See SBA SVOG FAQs—Eligibility—Museum or Movie Theatre Operator, at 6-7 (FAQ 10). (“Sales finalized after February 29, 2021 would not qualify because the underlying theaters were not eligible entities as of the deadline.”) 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.
65See SBA SVOG FAQs— Eligibility—Museum or Movie Theatre Operator, at 7 (FAQ 11). 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.
66See 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).
67Owner 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 17 (FAQ 3). 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 18 (FAQ 8). SVOG funds may not be used to make employees whole for temporary reductions in pay during the pandemic. See SBA SVOG FAQs—Use of Funds, at 19 (FAQ 18).
68This 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 17 (FAQ 2). 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 an allowable expenses solely to the extent of the original qualifying debt. See SBA SVOG FAQs—Use of Funds, at 17-18 (FAQ 5). 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 19 (FAQ 17)
69The SBA will use the IRS definition of ordinary and necessary business expenses. See SBA SVOG FAQs—Use of Funds, at 18 (FAQ 12). (“Per the IRS, ‘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.’”)
70 This 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 18 (FAQ 6)
71See SBA SVOG FAQs—Use of Funds, at 17 (FAQ 1).
72See SBA SVOG FAQs—Use of Funds, at 17 (FAQ 4).
73See SBA SVOG FAQs—Use of Funds, at 18 (FAQ 11).
74See SBA SVOG FAQs—Use of Funds, at 19 (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.”)
75See SBA SVOG FAQs—Subsidiaries & Affiliates, at 24 (FAQ 2).
76See Economic Aid Act § 324(d)(3).
77Depositing SVOG funds in an interest-bearing bank account will not be considered an impermissible investment. See SBA SVOG FAQs—Use of Funds, at 18 (FAQ 7).
78See 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 Note 55, supra.
79See Section 278(d) of Title III of the Consolidated Appropriations Act, 2021.
80See For 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—Revenue, at 23 (FAQ 17).
81See Economic Aid Act § 324(b)(2)(B)(i).
82See Economic Aid Act § 324(b)(2)(B)(ii
83See SBA SVOG FAQs—Application, at 14 (FAQ 9). See also Note 53, supra.
84See SBA guidance on this issue has been confusing because the summary of the SVOG Program on the SBA’s web page has 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.”
85See Economic Aid Act § 324(b)(2)(B)(iv).
86See Economic Aid Act § 324(b)(2)(E). For rules on determining full-time employee status, see Note 40, 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 25 (FAQ 7).
87See SBA SVOG FAQs—Application, at 13 (FAQ 7).
88See Economic Aid Act § 324(b)(1)(B).
90See Economic Aid Act § 324(e)(1)
91See Economic Aid Act § 324(e)(2).
92See Economic Aid Act § 324(f)(1).
93See Economic Aid Act § 324(f)(2).