Important Updates for Current Shuttered Venue Operator Grantees (SVOG)

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NEW SVOG FAQ

SVOG PROGRAM REPORT

 

SVOG NEW GUIDANCE

As we close calendar year 2021, many Shuttered Venue Operators Grant (SVOG) recipients have needed important clarifications from the Small Business Administration (SBA) on allowable ways and formulas for administering their funds before December 31st.  I have been working with several grantees on many of these questions and today, we finally received official SBA guidance as well as SBA permission to share these answers with the field. SBA will soon be formally publishing the technical guidance, but I wanted to get this information to everyone as soon as possible with only 9 days left in the year. SBA continues to underscore the point that “ordinary and necessary” cost explanations will be used as the key component in determining allocated cost reasonableness.

Determining the Amount of SVOG Funds that Can Be Used for Owner Compensation 

Owner compensation, including distributions and dividends, will be treated as an ordinary business expense and thus payable using SVOG funds to the extent that the total amounts involved do not exceed what an owner received in compensation in 2019. Limits are based on revenues in calendar year 2019, not fiscal years. A grantee must document ownership compensation for each month of calendar year 2019 (or first months of 2020 for businesses whose date began business operations in 2020). Here are the steps recommended by the SBA to appropriately use SVOG funds for owner compensation:

  1. In consultation with your accountant/tax preparer, determine what your owner compensation was for calendar year 2019. Please note that the SBA acknowledges that there are different formulas of how a company can determine what is included in owner compensation. One size does not fit all. For example, for those who file Schedule C’s, it’s common to use Line 31, the net profit, as your owner compensation even though you may not have actually personally drawn 100% of those funds in 2019 because you preferred/needed to keep it in the company’s bank account.
  2. Next divide that 2019 owner compensation amount by 12 months to determine what your monthly average is.
  3. Next multiply your average monthly owner compensation amount by the number of months in your project period. (Project period is either 22 months - March 2020 to December 2021 - if you were only awarded an initial SVOG grant OR 28 months - March 2020 to June 2022 -  if you were also awarded a supplemental). 
  4. Then, you should subtract any federal PPP forgiven loans, state unemployment compensation and owner draws that you took from the company during your project period, so there’s no double dipping.
  5. Finally, take the balance in step 4 and pay yourself with SVOG funds. 

Here’s an Example of How to Apply the SBA formula for Owner’s Compensation:

  1. As a sole proprietor, I use Line 31 of my 2019 Schedule C linked to my federal tax form 1040 as my owner's compensation. This is $240,000
  2. $240,000 divided by 12 months = $20,000 monthly average owner compensation
  3. $20,000 monthly average owner compensation multiplied by 22 months because I only have an initial SVOG grant = $440,000
  4. Deduct $50,000 in PPP forgiven loans and $25,000 in pandemic unemployment compensation that I received during my project period. $440,000 minus $50,000 minus $25,000 = $365,000
    1. Also deduct all my owner draws ($90,000) taken from the business during the project period that were not otherwise allocated to PPP $365,000 minus $90,000 = $275,000
  5. I can use up to $275,000 of SVOG funds to pay myself as lost owner's compensation. This should be budgeted into the Payroll Expenses section of my SVOG budget.

Determining IF a Talent Representative Can Use Any of Their SVOG Funds to Pay Their Represented Artists for Lost Income in 2020 and 2021 

I’m so happy to report that SBA confirmed that reimbursing artists (represented talent) for lost income in 2020 and 2021 is an allowable SVOG award expense and not capped at $100,000. SBA provided specific details below.

  1. SVOG funds can be used for allowable costs of operation, including payments to represented talent for lost income, between March 1, 2020, and December 31, 2021 (or June 30, 2022, if the talent representative receives a supplemental phase award). 
  2. All operating costs reimbursed must be clearly allocable to the SVOG award, meaning that a cost should not be reimbursed with SVOG award funds, if it was already reimbursed or covered by other Federal or State aid, such as the Paycheck Protection Program (PPP) loan.
  3. Costs charged to an SVOG award are expected to be reasonable. This means that the determination of the cost amount is based on the entity’s own circumstances taking into account what is a "necessary" and "ordinary" expense for your business.
  4. SBA offered the following guidance on how to calculate reasonable compensation to pay represented talent for lost income. General SVOG program rules establish that compensation for employees or contractors, is not limited to the exact amount expended between January 2019 and February 29, 2020, but compensation must be reasonable based on documents provided for 2019 and/or 2020. In the case of talent representatives, a cost would appear reasonable and allowable if you used the monthly average for 2019 expenses to reimburse talent for the period from March 2020 through December 31, 2021 (or June 30, 2022, if the talent representative receives a supplemental phase award).  (Note: this is a similar approach that was used in determining owner’s compensation.)  
    1. Here are the examples that the SBA provided: 

For example, if talent costs totaled $120 in 2019, the monthly average expense would be $10. Therefore, it would be reasonable for you to reimburse talent $220 ($10 x 22 months) with SVOG award funds for costs that would have been incurred between March 1, 2020, and December 31, 2021. If a supplemental award was received, the talent cost payment could be scaled to $280 ($10 x 28 months) for March 1, 2020, and June 30, 2022.

There is a possibility for SVOG grantees to further supplement the base talent payments calculated using 2019 monthly averages. If there was a change in circumstances between 2019 and 2020, such as a substantial increase in scheduled performances that would have likely led to a revenue increase, then you could devise an additional calculation to determine appropriate reimbursement. This could be as simple as dividing the events projected for 2020 by the events performed in 2019.

For example, if the talent performed 20 events in 2019 and was projected to perform 30 events in 2020, then 30/20 = 1.5 times more events (a 50% increase). Therefore, the 2019 monthly average could potentially be boosted by 50% to establish reasonable compensation for 2020 and potentially 2021 if a similar level of performance was planned or attempted.

​​​Note: In paying talent with SVOG funds, SBA would expect to see copies of the documentation utilized to determine 2019 monthly averages and how the monthly average was applied to make talent payment for 2020 – 2021. A random sample of grantees will be selected for monitoring and asked to provide supporting documentation for a selection of expenses, so all grantees need to have expense documentation ready and available in preparation for monitoring.

More good news: Talent representatives are able to use SVOG funds to pay their represented talent who are foreign nationals (i.e., would receive a 1042-S rather than a 1099 form). SBA specifically confirmed that it is allowable to use SVOG funds to pay foreign nationals authorized to work in the United States who are being reimbursed for work conducted in the United States. 

 

ADDITIONAL SVOG UPDATES AND DEADLINES

If you missed any of last week’s SBA Office Hours for SVOG grantees, a recording of the link is available at the SBA's YouTube page.

Wednesday, December 29, 2021, is the last date SBA will reissue expired or declined Appeal or Supplemental Action Items. Requests received after this date will notbe approved. If you were unable to complete one of these action items and would like it reissued, please email [email protected] with the Subject: 'SVOG - Please Reissue Action Item' and indicate which Action Item you would like reissued prior to the December 29, 2021 deadline.

If you believe you will not be able to respond to an open action item before it is due to expire, you may request an extension by emailing [email protected]. SBA will review these requests on a case-by-case basis. 

SVOG PROGRAM DATA REPORT AS OF 12/20/21

                                                       SVOG Overview Slide

See the full report here. 

 

MY ZOOM OFFICE HOURS @ 11:00am ET WILL RESUME JANUARY 7th

You can ask me any of your federal COVID-19 relief questions during Zoom Office Hours. The next one will be on Friday, January 7th @ 11:00 am ET. Use this link to join the Zoom call.

Have a happy and safe holiday. See you next year!