Update: The SBA has announced that it will begin accepting applications for the Shuttered Venue Operators Grant (SVOG) on Thursday, April 8, 2021. Additionally, the American Rescue Plan Act of 2021 changed the SVOG program by allowing recipients of a new Paycheck Protection Program (PPP) loan to also receive an SVOG. Entities that received a PPP loan on or after December 27, 2020 will see the loan amount deducted from the subsequent SVOG award. Entities that received a PPP loan before December 27, 2020 will not see the loan amount deducted from a subsequent SVOG grant. Entities will not be able to apply for a PPP loan after receiving an SVOG. The SBA has also issued updated guidance on eligibility; application process; and questions for certain industries. The updated SBA guide is available here.
Importantly, the SBA has also stated that in the event that all SVOG funding is spent during the initial phase of the program (or if funds run out before the SBA can provide additional fully funded grants to all eligible entities), the SBA intends to issue a “zero dollar placeholder” additional rewards that could be amended later to add funds in the event Congress appropriates additional funds for the program.
The Small Business Association (SBA) released guidance on January 27, 2021 regarding the Shuttered Venue Operators Grant (SVOG), a grant program for struggling live and in-person industries, which was established in the recent Stimulus Package. . While the ASB is still working on the creation of the application portal and is not yet accepting applications, eligible entities must weigh their options to determine whether they wish to apply for the SVOG or apply for a paycheck protection program loan. (PPP).
The new SBA guide, available here, answers many questions related to SVOG eligibility, the categories of industries that may be eligible, how the funds are used, how the grant amount is calculated, how to calculate gross income, and how how the subsidiaries take the analysis into account.
Mainly, the guide deals with the interaction between SVOG and PPP. Many entities will likely be eligible for both federal relief programs (provided they meet the PPP size requirements). Significantly, entities that requested a first-draw or second-draw PPP loan on or after December 27, 2020 ineligible to request an SVOG until the PPP loan request is refused. Entities cannot apply for a PPP loan now and decide later whether to accept the loan if they have not received SVOG.
In other words, entities cannot apply for a PPP and SVOG loan at the same time and decide which to borrow later. The SBA states that “Entities must make an informed business decision as to which program will benefit them the most and apply accordingly.”
With the PPP Second Draw application portal having been online for weeks and concerns growing about the availability of money, the difficult question is whether to apply for the SVOG or the PPP loan.
There are different factors to consider that can influence an organization’s decision:
- SVOG: SVOG is a grant, not a loan, and therefore it does not need to be repaid and an entity does not need to go through the application process with a lender and risk being denied the remission . However, entities must prove their eligibility for the grant, which can increase administrative effort and costs. Significantly, SVOG allows for a wider use of funds; In addition to eligible expenses under the PPP, the SVOG authorizes certain additional expenses: debt repayments scheduled before February 15, 2020; payments to independent contractors; maintenance costs; administrative costs; national and local taxes and fees; operating leases; insurance payments; and advertising, production transportation and capital expenditures related to the production of a theatrical or performing arts production. If an organization has such expenses, it is a major benefit for SVOG.
The timing of receiving the grant is also an issue. SVOG funds will take longer to issue than PPP, so if an organization is in a bind over money, PPP may be the best option. Once the SBA begins accepting SVOG applications, the SBA will issue grants using a tiered approach, awarding the first grants to those entities that experience the most difficulty (i.e., first priority: 90 % or more loss of income; second priority: 70% or more loss of income; third priority: 25% or more loss of income). There is a cap of $ 15 billion on this program (of which $ 2 billion is reserved for eligible applications with up to 50 full-time employees) and it is not known how quickly the money will be released. So if an entity can only show a 50% loss of revenue, for example, it is not clear whether funds will still be available.
Entities may also be eligible to obtain more funds under SVOG than under PPP. Eligible applicants may qualify for SVOG in an amount equal to 45% of their gross earned income, with the maximum amount available for a single grant of $ 10 million. This differs from the PPP calculation based on 2.5 times the average monthly payroll for 2019 or 2020.
- PPP: PPP is a forgiveness loan, and entities must work with their lenders to obtain the forgiveness. The monies are mainly used to cover the salary costs of employees rather than for independent contracts. However, as noted above, one of the main draws of the program is that entities are likely to receive funds faster than SVOG. Although it is also not known if or when the PPP funds will be spent, rest assured that unlike the first round of PPP financing, many entities are no longer eligible and the demand for such loans is therefore well below. the first time PPP loans. have been made available.