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$50 Million in Funding Available for Small
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DeHart,
Kevin W. Levy, Jr.,
Ralph

October
2020

Industry Alerts

$50 MILLION IN FUNDING AVAILABLE FOR SMALL BUSINESSES IN TENNESSEE
THROUGH SUPPLEMENTAL EMPLOYER RECOVERY GRANT PROGRAM

Tennessee
Governor Bill Lee recently announced that the Supplemental Employer Recovery
Grant ("SERG") program will distribute $50 million in federal Coronavirus Relief
Funds through the Tennessee Department of Revenue ("TDOR") to help Tennessee
small businesses cover eligible direct expenses or costs incurred as a result of
business interruptions due to the COVID-19 pandemic. The SERG program will
distribute funds directly to small businesses that qualify based on a
first-come, first-served basis.

Eligibility

For a business to be eligible under
the SERG program, the business must:

• as of August 31, 2020, be a
Domestic Business in the State of Tennessee or a business formed in another
state that primarily operates in Tennessee with at least one physical location
in Tennessee;
• not be a subsidiary of a business with consolidated annual
revenues (receipts) in excess of $10 million;
• as of August 31, 2020, were
registered with the Tennessee Secretary of State, were registered with the TDOR
or, for an unincorporated business such as a sole proprietorship or a
disregarded entity for federal tax purposes, have filed a federal Schedule C for
that business with the individual owner's IRS Form 1040;
• have been
operational since April 1, 2020, with the exception of temporary closures due to
COVID-19 and be able to provide documentation that shows the business has been
in operation for that time period;
• provide proof of economic hardship due
to COVID-19 related interruption of business ("Business Interruption Costs") or
have incurred eligible direct business expenses related to COVID-19
("COVID-Related Expenses");
• have not engaged in any illegal activity in
violation of local, state, or federal laws or regulations, with federal
compliance taking precedence over local or state compliance;
• not exist for
the purpose of advancing partisan or other political activities, such as direct
lobbying of federal or state officials;
• be a for-profit entity or a
not-for-profit entity that operates under either Internal Revenue Code Section
501(c)(3) or 501(c)(19) (Note: for purposes of the SERG program, not-for-profit
entities formed under Internal Revenue Code Section 501(c)(3) or 501(c)(19) must
calculate annual revenues in accordance with the instructions for IRS Form 990
line 12); and
• have not already received an award under the SERG
Program.

The following businesses are not eligible to request or receive
business relief assistance:

• 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 have continuous
operations during the last six (6) months;
• As of August 31, 2020,
businesses that were not registered with the Tennessee Secretary of State or the
TDOR or as to which if unincorporated, their owners did not file a federal
Schedule C with their IRS Form 1040; and
• Businesses with no activity in
the state of Tennessee.

Losses and Expenses That Are Covered by
SERG

Although businesses cannot receive funds for both Business
Interruption Costs and COVID-Related Expenses, they can claim the greater of
either item up to the maximum allowable amount of $30,000. COVID-Related
Expenses include costs incurred by a business to meet public health requirements
or recommendations enacted, adopted, required, or issued by the Tennessee
Department of Health, the Centers for Disease Control, state or federal
regulatory authorities, and/or local, state or federal executive authorities due
to COVID-19, including any costs incurred:

• to create social
distancing measures;
• to clean or disinfect areas due to COVID-19;
•
for personal protective equipment for employees or customers;
• for
contactless equipment ;
• for equipment, items, or other expenses to screen
employees or customers to ensure they are not positive for COVID-19;
• for
equipment or items designed to track employees or customers who have tested
positive for COVID-19;
• necessary re-opening expenses; and
• expenses
to facilitate teleworking.

In addition, a business may seek recovery of
Business Interruption Costs to reduce the financial impact that COVID-19 had on
its net income. To be eligible under this category, a business will need to show
that its net income for the four-month period of May 1, 2020 through August 31,
2020 was less than its net income for that same period in 2019. To calculate a
"loss" and qualifying "business interruption" under this program, the business
must establish that it incurred a loss in net income during that period from
2019 to 2020.

Expenses that can be taken into account in determining Business Interruption
Costs incurred by a business during 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; and
• cost of critical business
operations.

Businesses that otherwise meet the SERG program criteria are
still eligible under this new program even if they already received a payment
from the Tennessee Small Business Relief Program so long as the same expenses
from May 1, 2020, through August 31, 2020 have not been reimbursed to the
business under any other federal program.

Application
Process

Applications for participation in the SERG program
opened on October 7, 2020 and are available through an online application portal that will remain open until
December 29, 2020, or until the program's funds are exhausted. Once started,
applications cannot be saved and businesses should have the following documents
available to complete the application:

• 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 (Charter,
Articles of Organization, Operating Agreements, Partnership Agreements, etc.);
and
• Proof of diversity business enterprise eligibility (disability
documentation, long-form birth certificate, etc.) if applicable to the business.

While no documentation is required to apply for the SERG program, once
an application has been accepted and the applicant is given access to the online
TN CAMS, the applicant will be required to submit all of the documents listed
above to support the application as part of the reimbursement process before
payment can be processed. According to SERG guidelines, businesses will have
from the earlier of ten (10) business days from receipt of notification that
access to the TN CAMS system has been granted or until 5 PM CST on December 29,
2020, to submit a Request For Funding ("RFF") with required supporting
documentation in order to receive payment. While not explicitly stated, it is
presumed that failure to provide the required documentation in the applicable
timeframe would necessitate an applicant restarting the application process.

Payments

As stated above, SERG awards are based
on Business Interruption Costs or COVID-Related Expenses, whichever are greater,
and applicants will be required to submit supporting documentation for costs
associated with responses to the COVID-19 emergency or supporting documentation
to prove business disruption. While there is $50 million in available funds,
individual awards are capped at $30,000 and a business can determine the amount
to which it is entitled through the online portal provided by the State of Tennessee. A single
exception to the per business payment cap is that businesses located in low to
moderate-income census tracts, opportunity zones, or promise zones (which are
all more fully defined in the SERG guidelines) will receive an additional $500
over and above the maximum allowable expenses.

Of the $50 million in
available funds, 10% of the total has been specifically reserved for grants to
eligible diversity business enterprises classified as a Minority Business
Enterprise, Women Business Enterprise or Service – Disabled Veteran Business
Enterprises and Enterprise owned by Disabled Persons (all of which are more
fully defined in the SERG guidelines). Both the 90% of the SERG program funds
that are available to non-diversity businesses and the remaining 10% of the
funds that are specifically reserved for eligible diversity business are
available on a first-come, first-served basis until all funds are depleted.

Payments under the SERG program 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 ("CAMS") to submit an 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 as submitted on the application.

There are some
restrictions on how a recipient business can use the funds received from the
SERG program. Any funds received from the SERG Program should be used to
respond to the financial disruption resulting from COVID-19 and its effects on
the individual business. Funds must not be used for payment of tax liabilities
to a government agency and for at least five years, businesses must also keep
records regarding how the funds are spent. By accepting funds, businesses
acknowledge and agree that they are subject to potential audit or other
verification by the State of Tennessee concerning their qualification for and
use of these funds. Funds are subject to recapture by the State of Tennessee if
the above requirements are not met.

If your business has been negatively
impacted by the COVID-19 pandemic and you have questions about the SERG program,
Susan Benedict attorneys are here to help.

For more information, call
Ralph Z. Levy Jr., Esq., at 615-620-173, or Kevin W. DeHart, Esq., at
615-780-1115, both of whom practice in the Firm's Nashville, TN office.

Related Services

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Contacts

Kevin
DeHart

Of
Counsel Nashville

T:615-780-1115

E:[email-masked]

Ralph
Levy, Jr.

Of
Counsel Nashville

T:615-620-1733

E:[email-masked]

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