While on the Federal level, politics have mostly gotten in the way of passing additional relief legislation, Tennessee small businesses got good news last week. The Supplemental Employer Recovery Grant (SERG) is a statewide, $50 million program providing up to $30,000 as a grant to help small businesses manage COVID-related and business interruption expenses. The funding also includes specific support for minority, women, and veteran-owned businesses. The application officially went live on October 7th and will run through December 29th, 2020. Funds will be distributed on a first come first serve basis until depleted.
Grant funds can be used to support the cost of business interruption due to COVID-19 as a result of required closures, voluntary closures to promote physical distancing or decreased customer demand. The funds cannot be used for expenses previously covered by other relief programs such as the Paycheck Protection Program, business interruption insurance proceeds, Small Business Administration Economic Injury Disaster Loan, or other federal funds. Companies that received those funds, however, are eligible they just can’t be used twice for the same expense.
Compass East has begun to process applications for our clients and generally, our team has been using the business interruption as the use case. As you will see in the details section below, companies have to report a negative net operating income year over year to justify business interruption and funds can be used for “critical business operations”. This definition of critical business operations is fairly generalized. Taking this route will likely give your business more flexibility on how the grant can be used and will be less likely to conflict directly with PPP expenses.
Specifics on the program and how to apply are summarized below:
What companies are eligible for SERG?
- For-profit or Non-profit 501(c)(3) or 501(c)(19) organizations
- A “Domestic Business” in the State of Tennessee or is a business formed in another state that primarily operates in Tennessee with at least one physical location in Tennessee.
- Tennessee Domestic Businesses include:
- For-profit businesses legally formed in Tennessee with Articles of Incorporation in Tennessee
- Limited Liability Companies with Certificate of Formation in Tennessee
- Limited Partnerships with Certificate of Formation in Tennessee
- General Partnership with a partner owning more than 50% of the partnership interests resides in Tennessee and the business’ principal place of business and general operations are in the State of Tennessee.
- Sole proprietorships with the owner residing in Tennessee and general operations are in Tennessee
- Companies with less than $10 million of consolidated annual revenue. Subsidiaries with less than $10 million of revenue from all related and parent companies.
- Registered with the Secretary of State, registered with the Department of Revenue, or files a federal Schedule C as of August 31, 2020
- Operational since April 1st, 2020 with the exception of temporary closures due to COVID. Must provide documentation that the company has been in operation for that time period.
- Has not engaged in illegal activity
- Companies incorporated or located in other states, but generate greater than 50% of revenue inside Tennessee
Each applicant is limited to one business per application, but multiple applications are allowed for businesses under the same ownership. If businesses are subsidiaries under the same holding company, they must stay under the $10 million threshold.
What are eligible expenses for SERG?
Eligible expenses are costs incurred by the business to meet public health guidelines due to COVID provided by the CDC, Tennessee Department of Health, or Federal and State Regulatory Authorities. Eligible expenses to be covered by the grants include:
- Costs to create social distancing measures
- Costs to clean or disinfect areas due to COVID-19
- Personal protective equipment for employees or customers
- Contactless equipment
- Equipment, items or other expenses to screen employees or customers to ensure they are not positive for COVID-19
- Equipment or items designed to track employees or customers who have tested positive for COVID-19
- Necessary re-opening expenses
- Expenses to facilitate teleworking
Business interruption is also a qualifying use for these funds. Specifically, a business may seek funds under this program to reduce the impact COVID-19 had on their net income. Businesses will need to show a net income loss for the same four-month period ending August 31st, 2020 compared to the same period in 2019. The negative difference between the two periods will be the “loss” and qualify under business interruption cost. Company revenue could theoretically increase during that period and still be eligible as long as NOI fell year over year.
Eligible expenses for the eligible four-month period may include:
- Mortgage interest
- Payroll expenses
- Rent or lease or payment for real or personal property used for business purposes
- Utility payments for business properties
- Cost of critical business operations
Note: These are potentially the same expenses that were covered in the Paycheck Protection Program. If PPP funds were used in the same covered period for these expenses, they are ineligible for SERG grants.
Covered Period
May 1st through August 31st, 2020
What are the Application and Documents requirements?
Company Information and Financials:
- Business Name, Address and Primary Contact (email & phone)
- Entity Structure
- FEIN
- TN SOS #
- 2019 Annual Revenue
- Eligible COVID/Direct Expenses 5/1-8/31/2020
- 5/1-8/31/2019 – Revenue and Total Expenses (including COGS)
- 5/1-8/31/2020 – Revenue and Total Expenses (including COGS)
Documents:
- Copy of most recently filed IRS Tax Return (1040 with Sch C, 1120, 1120S, 1065, 990)
- Completed IRS Form W-9 providing identifying information required for payment
- Bank Statements for the period May 1 to August 31, 2019, and May 1 to August 31, 2020 (“Expense Period”)
- Current and prior year Balance Sheet and Income Statement for the expense period
- Supporting documentation for eligible direct expenses and other business interruption expenses as requested (invoices, canceled checks, proof of receipt, etc.)
- Ownership documents (Article of incorporation, partnership agreements, etc.)
By accepting funds, businesses acknowledge that they are subject to a potential audit by the State and records must be kept for 5 years. Funds cannot be used for tax liability payments and are subject to recapture if requirements are not met.
How do I fill out the application?
Application and Calculator
What companies are ineligible?
- Lending and investment institutions
- Insurance companies
- Racetracks or gambling facilities
- Businesses owned by State of Tennessee employees or their family members living within the household
- Businesses engaged in any illegal activity per local, state or federal regulations, with federal regulations taking precedence over local or state regulations
- Businesses that did not continue operations during the last 6 months
- Businesses that are not registered with the Secretary of State, nor registered with the Department of Revenue, nor filing a federal Schedule C as of August 31, 2020 Businesses with no activity in the state of Tennessee.
- Does not exist for the purpose of advancing partisan or other political activities, such as directly lobbying federal or state officials.
Payments
Payment will be made on a reimbursement basis. Once applicants are notified that funds have been allocated, they will receive access to the Tennessee Cares Act Management System (“TN CAMS”) to submit a Request For Funding (“RFF”) for the estimated benefit calculated on the application and associated documentation. Upon review and approval of each RFF, checks will be mailed to the recipient’s address submitted on the application.
Questions on how to Apply?
Reach out to us directly at Compass East and we can help you!