LGT's Profit Sense

One of the coronavirus relief options available for eligible not-for-profits is the Shuttered Venue Operators (SVO) Grant, created by The Economic Aid to Hard-Hit Small businesses, Nonprofits, and Venues Act, which is a COVID -19 relief bill. Eligible entities can receive grants equal to 45% of gross earned revenue, up to a maximum of $10 million. 

Eligible entities include:

• Live venue operator or promoter
• Live performing arts organization operator
• Relevant museum, zoo, and aquarium operators who meet specific criteria
• Motion picture theater operator
• Theatrical producer
• Talent representatives

A potential grantee within one of these categories must have been in operation as of February 29, 2020 and gross earned revenue during a calendar quarter in 2020 fell by at least 25% from the same quarter in 2019.

Grants will be allocated in priority based on the percentage loss in revenue incurred by eligible entities during the period from April 1, 2020 through December 31, 2020 compared to the same period in 2019.

First Priority: During the initial 14-day period in which SBA awards grants, only eligible grantees with a 90% or greater loss in revenue during the nine-month period beginning on April 1, 2020 and ending on December 31, 2020, in comparison to the same period in 2019, are eligible to receive funds.

Second Priority: During the 14 days after the initial 14-day period, only eligible grantees with a 70% or more revenue loss during the same nine-month period are eligible to receive funds. The term “revenue” for this and the initial 14 days excludes amounts received under the CARES Act.

Third Priority: After the first 28 days of disbursements, the SBA will award the grant to eligible grantees with a 25% or greater loss between one quarter of 2019 and the corresponding quarter of 2020.

[New FASB guidelines for gifts in kind]

Supplemental funding may be available after all priority periods have passed for recipients of first, second, and third priority round awards who suffered a 70% or greater loss for the most recent calendar quarter.

Revenue

 As required by the Economic Aid Act, the SBA is defining earned revenue and gross earned revenue (the two terms in the law) in accordance with common principals of the accrual method of accounting. Using this, only funds organizations receive from the sale of goods or services are counted as earned revenue. This commonly accepted definition of earned revenue does not include other sources of funds that an organization may receive, such as donations, sponsorships, governmental assistance, or returns on investments. Gross earned revenue is the total of earned revenue from various sales of goods or services, such as admission tickets, merchandise, food and beverages, advertising sales, and contracted presentation income.

Fundraising events will be treated as they would for tax deduction purposes. So, the portion of the amount or membership costs an individual pays in connection with an event or membership which represents the estimated value of the goods or services they received in exchange, or provided as a condition of membership, must be included in gross earned revenue. Similarly, the portion of the amount or membership costs an individual pays that exceeds the estimated value of the goods or services they receive or provided as a condition of membership will be considered a donation and is not included in gross earned revenue.

[Big Changes to the Employee Retention Credit in the Recent Bill]

For a not-for-profit organization, grants are excluded from gross earned revenue, but the SBA will consider the organization’s federal grants revenue (and other federal payments regardless of the use) to determine whether it meets the eligibility limit of having no more than 10 percent of its gross revenue from federal sources, not including disaster assistance.

Rental income from longer-term tenants and short-term rentals for event hosting should be included in earned revenue, as such rental income is derived from standard commercial transactions for the paid use of facilities.

Allowable Expenses

Funds may be used towards costs of payroll, covered rent, covered utilities, scheduled interest or principal on any covered mortgage obligations (not including prepayment of principal), scheduled interest or principal on any debt instruments incurred in the ordinary course of business before February 15, 2020, covered worker protection expenditures, payments made to independent contractors (not to exceed a total of $100,000 in annual compensation per contractor), and other ordinary necessary business expenses, including maintenance costs, administrative costs, state and local taxes and fees, operating leases in effect as of February 15, 2020, and payments for insurance. Funds may also be used, but not primarily used, for advertising, production transportation, and capital expenditures relating to producing a live performance or exhibition. Funds can also be used to refund customers still holding tickets for cancelled performances. 

[LGT offers not-for-profits essential services]

Grantees may not use the award funds to buy real estate, make payments on loan originated after February 15, 2020, make investments or loans, or to make contributions or other payments to, or on behalf of political parties, political committees, or candidates for election.

Museums

 The Economic Aid Act specifically requires fixed seating for qualifying amphitheaters of museums. This requirement cannot be satisfied by temporary, removable, modular, convertible, or other non-fixed arrangements. However, there is no requirement that the venue be indoors. (NOTE: There is no fixed seating requirements for other types of eligible entities). A museum partially funded with state dollars is eligible as long as it meets other specific eligibility rules for entities owned by state or local governments and receipt of CARES Act funding does not disqualify museums from SVO grants.

Application

The application window is not open yet, but if your organization is eligible, you should consider preparing now by registering for a Dun and Bradstreet (DUNS) number (if you don’t already have one) at www.dnb.com. Other identifiers, such as an individual taxpayer identification numbers or the employer identification numbers, cannot be used.  Once a DUNS numbers is obtained, you should then register with the federal government’s System for Award Management (SAM) at www.SAM.gov. The SAM registration may take up to two weeks after submission so it is crucial that this is done soon. 

[Encouraging donor advised funds]

Please note that you cannot apply for a PPP loan and the SVO grant at the same time. You must make an informed business decision as to which program will be most beneficial and apply accordingly. However, if an applicant is rejected by one program, it will then be eligible to apply for the other. 

Lastly, entities that receive SVO grant funds are required to retain records that document compliance with grant requirements, such as employment records for the four-year period following receipt of each grant and other relevant compliance records for the three-year period following receipt of each grant.

Please don’t hesitate to reach out if you need guidance. We are always happy to answer any questions that come up as you walk through the application.