In March, M&T Bank convened a panel of leaders of cultural organizations for the latest in our award-winning Managing Through Challenging Times series. The discussion homed in two programs that have become vital to the financial wellbeing of many groups: the Payroll Protection Program (PPP) and the Save Our Stages (SOS) Grant program. In addition to the myriad complications that COVID-19 has brought on for these organizations, they also must understand the details of these programs in order to leverage either or both of them most effectively.
The panel featured:
- Janet Farrell, Group Vice President, Education and Not-for-Profit Banking Group, M&T Bank
- Jack Lewin, Group Vice President, M&T Bank
- Rob Katz, Managing Director, Financial Advisory Services, EisnerAmper
- Jim Farkas, Vice President and Chief Financial Officer, New York City Center
- Aidan Connolly, Executive Director, Irish Arts Center
First, the most important topic surrounded the basics of both programs.
Paycheck Protection Program
The PPP is an SBA-governed lending program administered by banks and other institutions to mainly help businesses defray the costs of paying employees. In short, the program sizes loan amounts based on payroll – generally the W-2 payroll – for every employee, allowing for loans of up to 2.5 months of payroll.
The key eligibility requirements for a PPP loan are fairly broad – organizations may receive one loan per tax identification number. There are no prepayment penalties or premiums, no collateral and no personal guarantees. PPP funding constitutes a 1% loan for 24 months or 60 months depending on the date the loan was made. If managed in accordance with all guidelines and with proof that the funds have been used for eligible expenses, the borrower may apply for loan forgiveness.
“We have already received and processed about 80% of our loans that have come in to be forgiven, with the exception of a few in excess of $2 million,” said Jack Lewin, Group Vice President, M&T Bank. “All of those companies will be forgiven, which is a beautiful thing.”
The SOS Grant Program
The SOS program (also known as the Shuttered Venue Operators Grant program or SVOG) has been funded with $15 billion for eligible small businesses in the arts – including live venues, producers, performing arts, museum operators, motion pictures and talent representatives. Grants run up to $10 million per organization for certain covered expenses beginning in March 2020.
In order to qualify, an organization must have been in operation at the end of February 2020 and demonstrate a 25% reduction in revenue for the same quarter in 2019, with a plan to resume operations. In addition, organizations applying for the grant are required to submit a good faith certification – a very important factor for a positive outcome.
Permitted expenses parallel the PPP program, including payroll, rent, utilities and certain interest and principal debt obligations. An important distinction to note is that the SVOG allows for organizations to include contractors in payroll, versus solely W-2 employees, while the PPP prohibits this.
Either PPP or SVOG – or Both?
Just after our panel convened in early March, President Biden signed the America Rescue Plan Act of 2021, which changes federal law to allow businesses to apply for both a PPP loan after Dec. 27, 2020 and the SVOG. While our panelists were discussing their experiences having to choose one over other, it’s important to keep in mind that although businesses may have the opportunity to select both, this may not be the right decision. It’s critical to understand how each program operates.
“First, let me say that the decision-making process has been a complicated one and anything but straightforward,” said Jim Farkas, VP and CFO, New York City Center. “Due to the SVOG information having been disseminated in piecemeal, our decisions have been informed by some speculation, as well as a liberal application of common sense.”
New York City Center ultimately chose SVOG over PPP for a few key reasons. First, as a performing arts venue, they understood that they would be fully eligible for SVOG and felt more comfortable that it was a grant versus a loan. In addition, based on their calculations surrounding the second round of the PPP program, New York City Center surmised that they would have about four times the funding eligibility under SVOG.
Given the fact that eligible SVOG expenses go beyond payroll and real estate to line items such as administration, insurance, advertising and production costs, they felt confident they would be able to fully earn out their SVOG grant. Finally, the longer timeframe (12 months) allowing them to earn out their grant was more appealing than the PPP’s 24 weeks.
Like Farkas, Aidan Connolly, Executive Director of the Irish Arts Center in New York, commented on the challenge of having to choose which program to access without answers to all his queries. “Regardless of route taken, I think the question everyone keeps asking themselves throughout this process is, ‘How do we make a decision with so much uncertainty, and the ground beneath us continually shifting?’” he said. “I envy all of the folks who are still in the process of making a decision, as you have more information than we did.”
As a smaller organization with 16 full-time employees and several dozen part-time workers and independent contractors, the Irish Arts Center began the entire process by establishing a set of guiding principles. These focused on the well-being of staff, artists and audiences, and became an important beacon to keep them on track when making decisions about funding, despite so much uncertain information.
When finalizing their decision to move forward with the second round of PPP funding, the Irish Arts Center weighed not only the amount of aid they qualified for, but also the amount of contributed and earned revenue lost. While the Center has been able to deliver a significant amount of digital programming and sustain a portion of their income, it wasn’t nearly enough to make up for the loss of box office and special events revenue. This is where their PPP loan was able to supplement.
Throughout the entire process, the Irish Arts Center ensured they were carefully documenting their journey – how they utilized their guiding principles to work through uncertainty and how their committees arrived at the criteria for their decisions. This not only serves as a reminder for how the team worked and triumphed through adversity, but also can act as a roadmap for dealing with future challenges.
Please review the content discussed in this important webinar and reach out to your Not-for-Profit Banking Relationship Manager or email Christopher Callaghan directly for questions regarding the challenges you may be facing during these unprecedented times. Be sure to revisit our Managing Through Challenging Times microsite at mtb.com/managing to access other episodes you may have missed within our series.
- The opinions expressed within this webinar and subsequent article are those of the panelists and not those of M&T Bank, nor does M&T Bank necessarily endorse those opinions or suggestions for your own organization
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