The reopening of the federal government’s Payroll Protection Program (PPP) is great news for the vacation rental industry. Although vacation rentals have fared better in some cases than might have been expected last spring, many vacation rental managers and their employees are still hurting after months of uncertain business. The PPP offers financial assistance that in may cases does not need to be repaid.
The PPP was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed last spring. In December, Congress renewed the program, which is run by the Small Business Administration.
The program offers up to $659 billion in federally guaranteed loans that can be forgiven if the borrower meets certain criteria, including maintaining employee and compensation levels and spending loan proceeds on payroll costs and other eligible expenses.
PPP loans are available for businesses with 500 or fewer employees that were operating as of February 15, 2020. Borrowers are required to certify that they need the loan to support business operations and will use the funds only for eligible expenses. Vacation rental managers can apply for the latest round of loans until March 31, 2021.
Higher loan limits for second-time accommodations industry borrowers
Recognizing that travel and hospitality businesses have been especially hard hit during the pandemic, the government is allowing second-time PPP borrowers in food services or accommodations to borrow 3.5 months’ worth of payroll costs. Second-draw borrowers in other industries may only borrow an amount equal to 2.5 months of payroll. All loans are capped at $2 million.
Second-draw PPP borrowers must have:
- Fewer than 300 employees.
- Experienced a reduction of at least 25% in gross receipts during a quarter of 2020 compared with the same quarter in 2019.
While many aspects of the PPP remain the same as the original incarnation, some elements have been updated. Here are a few worth noting:
- Borrowers can choose a loan length between eight weeks and 24 weeks.
- Borrowers who receive PPP loans under the original or renewed program may take tax deductions for expenses paid for with PPP loan funds.
- The latest rules expand the list of expenses eligible for forgiveness. These include mortgage interest, rent, utilities, costs related to COVID-19 safety and compliance, property damage caused by looting or vandalism during 2020 that is not covered by insurance, and certain supplier costs and expenses for operations.
- Existing PPP borrowers whose loans were not forgiven by December 27, 2020, may reapply for a first draw PPP loan if they previously returned some or all of their first draw PPP loan funds.
- Existing PPP borrowers whose loans were not forgiven by December 27, 2020, may in some cases apply for more funds if they did not previously accept the full amount for which they are eligible.
How to apply
As in the first round of the PPP, loans are available through SBA 7(a) certified lenders, including banks, credit unions, and other financial institutions.
With the rollout of COVID-19 vaccines, there is light at the end of the tunnel of this time that has been so tumultuous for the vacation rental industry. PPP loans have the potential to help many vacation rental managers make it through.
This is what is available currently, but we do expect to see an additional package.