More Government Funding Coming for Struggling Businesses, Musicians: Here's What You Need to Know

United States Capitol Building
Mark Tenally/AP/Shutterstock

United States Capitol Building

"You need to expect frustration," but act quickly if you want to benefit from round two of small business loans.

This month some in the music industry have been receiving crucial financial support through the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, signed by President Donald Trump on March 25, that allocated $350 billion to help small businesses affected by the coronavirus and keep workers employed. But the program's rollout of the Payroll Protection Plan and other relief options was muddied and often baffling, leaving many more without much-needed support.

The CARES Act is a well intentioned, bipartisan effort to speed financial relief to businesses -- especially restaurants -- and certain non-profits. But the way it was enacted has caused some needy companies to miss out on funding or not apply at all; the $350 billion allotment was gone in just 13 days.

But businesses will soon have another chance. On Thursday, the House approved the $484-billion aid bill to provide additional small business loans. President Trump signed the bill into law on Friday and the application process should begin soon; last time, the first round of funding came seven days after the President signed the bill. [Update: banks began taking applications on April 27.]

Here's what you should know:

Get ready now: "The best advice I can give is you cannot procrastinate on this," says Bart Herbison, executive director of the Nashville Songwriters Association International. Banks will have used the first funding around to work out kinks in their application processes, but businesses will undoubtedly seek guidance in providing the Small Business Administration with accurate information. "You need to expect frustration."

You need to reapply, even if you already applied for the first round of funding: Applicants have multiple resources but they must navigate a difficult application process; the Small Business Administration requires specific information for its payroll protection, loan advances, bridge loans and debt relief. And because there is not a queue, applicants whose first application was late need to apply again -- but banks will only accept applications once the PPP fund is replenished.

Is it hard to get approved? To disburse CARES Act funds quickly and as broadly as possible, Congress has relaxed loan requirements beyond what's typically required of companies and individuals. The Small Business Administration does not require a personal guarantee, collateral or a credit history to receive the loan. Most importantly, up to 75% of the loan need not be repaid, if it's spent on payroll costs.

How much can you get? Congress created the PPP to provide companies a financial lifeline to remain in business and keep employees. Businesses can borrow 2.5 times their monthly payroll costs for an eight-week period, up to $10 million. The PPP caps compensation at $100,000 a year but covers retirement contributions, health care benefits, paid vacation and some taxes paid by employers.

It's not just for full-time or on-staff employees: Individuals who normally wouldn't obtain unemployment benefits can get CARES Act funding, too. The PPP covers independent contractors, sole proprietors and certain self-employed individuals. The act also funds generous pandemic insurance through individual states. Requirements and application processes vary, but in general people who have lost income because of the coronavirus could be eligible for financial assistance for 39 weeks in 2020.

There are other resources available:  Musicians have other avenues beyond the CARES Act to help make ends meet. Artists have been able to tap their record labels and publishers for advances without having to give up additional rights, says attorney Dina LaPolt, calling it a "refreshing" change from years when labels would expect additional rights in return. Artists can also obtain advances against royalties from distributors or auction rights to future royalties through companies such as Royalty Exchange.

Lanie Allbee of Martin, Allbee, Miller, Bryan & Associates in Nashville is advising home-owning clients to take advantage of federal and state assistance. The CARES Act allows homeowners with federally backed loans to request a pause or reduction of their mortgage payments; the act also prevents lenders from starting foreclosure on federally backed loans for at least 60 days. Homeowners with privately backed mortgages are not included, although some states -- namely California and New Jersey -- have reached deals with banks to allow a 90-day grace period for mortgage payments.

There are also more than four dozen relief funds that professionals and creators can apply for from organizations like the Recording Academy's MusiCares that are holding parts of the music business together during this crisis.

Where to apply: Business owners are probably going to apply through their commercial banks. The 2,500 banks participating in the PPP were a common hurdle in the first round's application process. (City National and Chase received high marks from those Billboard spoke with.) Anybody seeking PPP aid needs to apply through a participating bank, not the Small Business Administration. Each bank has its own application process with different language that might require parsing. In the first funding round, some applications weren't suited for sole proprietorships that don't have a payroll. Applications are supposed to be more understandable in the second round.

Small businesses have only been getting a fraction of the money: The Small Business Administration was widely criticized for the size of some companies that received funding -- but it depends on your definition of small. While the Small Business Administration limits PPP loans to small businesses with up to 500 employees, restaurants can have up to 500 employees at each location, meaning Shake Shack, a publicly traded company with almost 8,000 people at 189 locations in the U.S., received $10 million -- it announced Monday it will return the loan following public outcry -- and Ruth's Christ Steak House chain received $20 million.

Of the 1.035 million loans the Small Business Administration approved through April 13, 0.32% of the recipients received loans in excess of $5 million that accounted for 9.2% of the funding. Just 15% of the dollars went to 725,058 loans of $150,000 or less.

Who will need CARES Act aid?  Many artists are effectively small businesses that put backing bands and other employees on payroll to have access to them year-round. An artist that grosses $25 million to $30 million in annual touring revenue could have a payroll around $1.9 million to $2.1 million, says business manager Lou Taylor. "If you have zero income, you have to make a decision to spend your own money to keep your staff. Most businesses won't do that."

Albee agrees. Top country artists and "bigger Christian artists" that "pay employees $20,000 to $50,000 a month can't make payroll," she says. Some smaller artists have been creative online and streamed live performances, "but it's nothing compared to what they normally got," Allbee adds. "It might have brought in a couple thousand but they're used to getting $5,000 a show."

Mid-tier and developing artists are also less likely to have savings and require consistent touring income. It's bad news for their band members too, who are usually not on payroll and instead hired on a per-tour basis. Individuals aren't necessarily left out as the PPP covers independent contractors and sole proprietors. Herbison says he spoke with Rep. Ted Deutch, chair of the Songwriters Caucus in the House of Representatives, to ensure the act contained language that would apply to songwriters who work for themselves, not for companies.

Songwriters are also affected by retail closures, says Herbison, noting that many still work part-time jobs at restaurants and bars and may require PPP loans because songwriting is not their main income source.


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