Member Article

The Shuttered Venue Operators Grant (SVOG) is a new federally-funded program providing emergency assistance for eligible venues adversely affected by COVID-19. The program, administered by the Small Business Administration’s (SBA) Office of Disaster Assistance, will offer over $16 billion in grants to shuttered venues, providing economic relief to eligible entities. This legal update summarizes the requirements and additional information related to the grant application process.

ELIGIBILITY

Eligible entities include live venue operators and promoters, theatrical producers, live performing arts organization operators, relevant museum operators, motion picture theatre operators, and talent representatives, each subject to certain requirements.

Key requirements include:

• The person or entity must have been in operation as of February 29, 2020.
• The person or entity must demonstrate at least a 25% reduction in gross revenues between the corresponding quarters of 2019 and 2020.
• The person or entity must meet the principal business activity requirements.
• The person or entity must meet the operation/intention/facility requirements.
• The person or entity’s (majority) owner or subsidiaries must meet certain requirements regarding the geographical scope, the number of full-time employees, receipt of federal funding, and issuance of securities.
• Receipt of loans or funding under other federal programs such as the Paycheck Protection Program (PPP) may affect the eligibility or the number of grants awarded.
  
  

Additionally, each grant applicant must make “a good faith certification that the uncertainty of current economic conditions makes necessary the grant to support the ongoing operations of the eligible person or entity.”¹

SBA’s Preliminary Application Checklist can be a helpful tool for making an initial eligibility assessment.

Each eligible entity will be treated as an independent, non-affiliated entity for this program. However, a maximum of five business entities that would normally be considered affiliated under SBA’s affiliation rules can receive a grant under the program.

New owners of a qualified venue can also take advantage of the program in certain circumstances. SBA’s Frequently Asked Questions (FAQs) about SVOG (April 8, 2021 version) summarizes the transfer of ownership and its potential impact on the eligibility of an entity. According to the FAQs, as long as the new owner meets all other requirements, “the SBA will consider the new owner of an eligible entity to have stepped into the shoes of the prior owner for purposes of qualifying for the SVOG program.”

GRANT DISTRIBUTION

SBA opened the application process on April 8, 2021, but as of April 15, 2021, has temporarily suspended the SVOG portal due to technical difficulties. SBA is to provide an advance notice of the time and date before the reopening. The applicants may continue to register for an account using the SVOG portal. Applications will be reviewed on a first-come, first-served basis.

The current amount of appropriated funds is approximately $16.25 billion. Should the funds get depleted before SBA can award grants to all eligible people or entities, SBA intends to issue a zero-dollar ‘placeholder’ which can be modified when and if additional funds are appropriated for the program.

There are three phases to the grant distribution program:

1. The initial 14 day period: the awarding of grants is limited to those whose revenue from the second through fourth quarters of 2020 is not more than 10% of the revenue from the second through fourth quarters of 2019, due to the COVID-19 pandemic.
2. The 14 days immediately following the initial 14 day period: the awarding of grants is limited to those whose revenue from the second through fourth quarters of 2020 is not more than 30% of the revenue from the second through fourth quarters of 2019, due to the COVID-19 pandemic.
3. After the end of these initial priority periods: the SBA may award the grant to any eligible person or entity.
   
   

Up to 80% of the allocated funds may be granted during the two initial priority periods. Additionally, $2 billion are set aside for eligible entities with no more than 50 full-time employees. This restriction ends after 60 days from the date of the application implementation.

Supplemental grants may be awarded if, as of April 1, 2021, the eligible person or entity’s revenue for the most recent calendar quarter is not more than 30% of the revenue of the corresponding period during 2019 due to the COVID-19 pandemic.

AMOUNT OF GRANT

The awarded grant amount is proportionately determined based on the gross earned revenue for a designated period (i.e. “for an eligible person or entity that was in operation on January 1, 2019, the amount equal to 45% of the gross earned revenue of the eligible person or entity during 2019” if it is less than the maximum allowed amount.²). An eligible person or entity may receive up to $10 million in total.

USE OF FUNDS

Timing: The initial grants may be used for costs incurred between March 1, 2020, and December 31, 2021. The supplemental grants may be used for costs incurred between March 1, 2020, and June 30, 2022. Any funds not spent within one year of the disbursement must be returned. For the supplemental grants, the period is extended to 18 months.

Cost sharing: If a parent entity is eligible, the parent’s shared costs remain as such and only the record showing that the funds served the grant purposes is required. If a subsidiary is eligible, only the portion of expenses the subsidiary pays can be covered by the funds.

Allowable expenses include the following:

• Scheduled mortgage payments (not including prepayment of principal)
• Scheduled debt payments (not including prepayment of principal on any indebtedness incurred in the ordinary course of business prior to February 15, 2020)
• Other ordinary and necessary business expenses, including the operation of leases in effect as of February 15, 2020
  
  

Prohibited expenses include the use of funds to:

• Purchase real estate
• Make payments on loans originated after February 15, 2020
• Make investments or loans
  
  

RECORDKEEPING REQUIREMENT

Grantees will be subject to increased oversight by SBA, which may include additional documentation requirements demonstrating compliance with the eligibility and other requirements of the SVOG program. Grantees must maintain employment records for a four-year period following receipt of the grant, and other records for a three-year period following the receipt of the grant.³

If you have any questions about this legal update, please do not hesitate to reach out to the authors or any of your contacts at Morris, Manning & Martin, LLP.

[1] 15 U.S.C. § 9009a(b)(1)(B).
[2] 15 U.S.C. § 9009a(c)(1)(A)(i)(I).
[3] 15 U.S.C. § 9009a(e)(1).