On December 27, 2020, the President signed the Economic Aid to Hard-Hit Small Business, Nonprofits and Venues Act (the "Act") into law. Section 324 of the Act creates a new program for Shuttered Venue Operators (the "Program") whereby the Small Business Administration's Office of Disaster Assistance (the "SBA") provides grants to live venues, live venue promoters, theatrical producers, live performing arts organizations, museums, movie theatres, and talent representatives (each a "Company").
A total of $15 billion has been allocated to the Program, of which at least $2 billion is earmarked for Companies with 50 or less full-time employees. Grants awarded under the Program will not be included in a Company's gross income and such exclusion from gross income will not prohibit a tax deduction simply because an expense was paid for with grant funds. Additionally, Companies that receive grants under this Program will not also be eligible to receive a second draw from the Paycheck Protection Program (click here for more on the Paycheck Protection Program).
Companies Eligible for Grants
To be eligible for a grant under the Program a Company must have: (i) been fully operational on February 29, 2020; (ii) had gross revenue in the first, second, third, or fourth quarter of 2020 that decreased at least twenty-five percent (25%) from the corresponding quarter in 2019; and (iii) be open or intend to reopen.
A Company may not: (i) be publicly traded; (ii) operate in more than one country or more than ten states; (iii) employ more than 500 full time employees as of February 29, 2020; or (iv) have received more than 10 percent of its 2019 gross revenue from federal funding (except for certain funds received from FEMA). Companies that are owned or controlled by entities that do not meet the above restrictions are also prohibited from receiving grants under the Program.
Additionally, a Company awarded a grant under the Program must certify to the SBA that it will not cancel an existing collective bargaining agreement and it will remain neutral in any union organizing effort among its employees.
The Program also establishes certain minimum standards to ensure that applicants are in fact bona fide live venues, live venue promoters, theatrical producers, live performing arts organizations, museums, movie theaters, and talent representatives. You should contact your attorney to ensure you meet these minimum standards.
Grant Amounts and Uses
Grants awarded by the SBA will be equal to 45% of a Company's 2019 gross revenue for Companies that were operating on January 1, 2019, or six (6) times the average monthly gross revenue for each full month operated in 2019 for Companies which started operating after January 1, 2019. However, grant awards are capped at $10,000,000.
Recipients of an initial grant may use the grant for the below listed expenses incurred from March 1, 2020 through December 31, 2021. Recipients that receive both an initial and supplemental grant may use the funds from either grant for the below listed expenses which were incurred from March 1, 2020 through June 30, 2022. Any initial grant money not spent within one year of receipt and any supplemental grant money not spent within 18 months of receipt, must be returned to the SBA.
Grants may be used for the following expenses:
(i) payroll costs;
(ii) payments on any covered rent obligation;
(iii) any covered utility payment;
(iv) payments on any covered mortgage obligation;
(v) covered worker protection expenditures;
(vi) loan payments incurred in the ordinary course of business prior to February 15, 2020 (excluding the prepayment of loans);
(vii) payments made to independent contractors, not to exceed $100,000 in annual compensation for any employee of such independent contractor; and
(viii) other ordinary and necessary business expenses including:
(a) maintenance expenses;
(b) administrative costs, including fees and licensing costs;
(c) state and local taxes;
(d) operating leases in effect as of February 12, 2020;
(e) insurance premiums;
(g) production transportation; and
(h) capital expenditures related to producing a theatrical or live performing arts production, concert, exhibition, or comedy show (except that a grant may not be used primarily for such expenditures).
The Program also expressly prohibits using grants to: (i) purchase real estate; (ii) pay loans that originated after February 15, 2020; (iii) invest or re-lend funds; or (iv) contribute to political parties and causes. The SBA may prohibit additional expenses at a later date.
Prioritized Companies, Supplemental Grants and Timely Applications
To prioritize grants, the SBA will compare a Company's gross revenue from April 1, 2020 through December 31, 2020 to the Company's gross revenue to the corresponding time period in 2019. When issuing grants, the SBA will for the first 14 days, prioritize Companies that have incurred a 90% drop in gross revenue. For the 14 days immediately thereafter, the SBA will prioritize Companies that have incurred a 70% drop in gross revenue. During this 28-day time period, the SBA will not grant more than $12 billion of the $15 billion allocated to the Program.
Additionally, the SBA may award supplemental grants 60 days after it starts accepting grant applications. Supplemental grants will only be awarded to Companies that received an initial grant. Companies may apply for supplemental grants if as of April 1, 2021, if a Company's gross revenue in the first quarter of 2021 has decreased 70% compared to the first quarter of 2019. Any supplemental grants awarded are anticipated to equal to fifty percent (50%) of the initial grant received by the Company.
We anticipate that additional guidance on the Program will follow in the weeks ahead. Companies should start gathering the appropriate documentation to demonstrate compliance with the various requirements outlined above. Businesses interested in applying for grants should contact their attorney for additional information on the Program.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.