A Simple Guide to Help Vacation Rental Managers Understand Aid Available through the Paycheck Protection Program
Undeniably, the vacation rental industry has been absolutely shaken as a result of the spread of COVID-19. Companies are hurting badly, and I’m seeing it first-hand. Many are furloughing or laying off employees; some have gone dormant; and others have already closed their doors. If the restrictions and lockdowns on travel continue, many more vacation rental businesses will not survive. Fortunately, the government has come together to approve several aid packages to help small businesses in our industry.
These programs include the Economic Injury Disaster Loan (EIDL), the Families First Coronavirus Relief Act (Families First), the Coronavirus Aid, Relief, Economic Security (CARES Act), and state-based programs.
By far, the most impactful aid for vacation rental managers is a section within the CARES Act: the Paycheck Protection Program.
What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP), formed under the CARES act, is a $349 billion program that provides small businesses with cash-flow assistance through 100-percent federally-guaranteed loans. The best part . . . all or part of the loan may be forgiven.
Highlights
- Businesses can borrow money for payroll, health care benefits, employee compensation, mortgage interest, rent, utilities, and interest on debt.
- All or a portion of loans may be forgiven as part of a process that incentivizes companies to retain employees.
- Loan amounts up to $10 million
- No collateral required
- No personal guarantee required
- Interest rate not to exceed 4 percent (Treasury Dept currently has it listed at 1.0%!)
- Loan term up to 2 years (no prepayment penalty)
- Payments can be deferred from 6 months to 1 year
- Not taxed on forgiveness
- Free to apply
Who Qualifies?
Pretty much everyone in the vacation rental industry qualifies. PPP loans are available for businesses with no more than 500 employees, and companies must have been in operation as of February 15th, 2020.
Borrowers do not need to demonstrate actual economic harm in order to qualify. Instead, they simply need to make a series of good-faith certifications, principally that current economic conditions necessitate the loan to support ongoing business operations, and that the funds will be used to maintain payroll and address other covered expenses.
What can I use the funds for?
The main idea behind the PPP is to retain employees. The funds can be used for payroll and commission payments, group health care benefits/insurance premiums, mortgage, rent, utilities, and interest on any other debt obligations that were incurred before the covered period.
How much can I get?
Businesses can receive roughly 2.5 months of payroll costs.
Payroll costs in this case are defined as salaries, sick leave, separation agreements, insurance premiums, retirement benefits or payment of state or local tax assessed on the compensation of employees. For example, if you average $500,000/year in the payroll costs above, you can receive a loan for just over $100,000 ($500,000 / 12 = $41,667 x 2.5 = $104,167).
I’ve created an online calculator to help calculate the amount you can get and how much will be forgiven.
Click here to try it for yourself.
Can I get some or all of my loan forgiven?
Yes. There is a component in the PPP that businesses would be eligible for forgiveness on portions of their loans if used for certain costs like payroll, mortgage, rent, and utilities that are incurred during an 8-week period starting on the loan’s origination date. The amount of forgiveness is based on the number of workers retained (or rehired) vs. the same period previously.
However, it is important to note that the amount of loan forgiveness will be reduced if salary cuts exceed 25 percent.
What about the SBA Economic Injury Disaster Loan (EIDL)?
EIDL Loans are provided directly from the Small Business Administration (SBA), and loans are available up to $2M. Rates are 3.75 percent, and terms are available up to 30 years.
EIDL Loans require:
- Pledged collateral for loans in excess of $25,000
- SBA-acceptable credit history
- SBA-determined ability to repay
- Personal financial disclosure and tax returns
- Please note . . . it is still unclear at this time if you can take loans under both EIDL and CARES PPP. We are waiting for guidance from the SBA
How do you apply?
Loans will be available immediately through SBA 7(a) certified lenders, which include banks, credit unions, and other financial institutions. The deadline to apply for the Paycheck Protection Program is June 30th, 2020.
SBA Lenders will begin taking applications for businesses and sole proprietorships April 3rd and for independent contractors and self-employed individuals April 10th.
For more information, contact Brooke Pfautz, founder and CEO, Vintory at Brooke@Vintory.com or 410.458.3900. Vintory.com
Resources
PPP Information Sheet from Treasury Department
Treasury’s Website for CARES Act
SBA Webpage Dedicated to the PPP
SBA Webpage Related to COVID-19
US Chamber of Commerce Summary of PPP
US Senate Committee on Small Business & Entrepreneurship – Guide to the CARES Act
CARES Act – Click here to read the bill in its entirety
List of the 100 most active SBA 7(a) Lenders
USBank Paycheck Protection Loan Program Inquiry Form
To Apply for SBA’s Economic Injury Disaster Loan (EIDL) Program
I have payroll expense, but report my vacation rental on Schedule E of my tax return.
Do I qualify for the PPP?
I manage 35 vacation homes and have 6 regular employees including myself plus several independent contractors. Our business is very seasonal May – Sept. due to our rainy climate in the Redwoods. Is it worth taking out a PPP loan when my business has been completely shutdown by moratoriums on travel/tourism in my county until California lifts it’s “Shelter in Place” order? I would have to hire back my staff for 8 weeks and pay them when no work is available and I doubt we will be open by June. Then what, lay them all off again??? Aren’t we all better off collecting unemployment for an extended period until the travel industry bounces back which could be far, far longer than 8 weeks? So much to consider.
My wife and I have two rental properties each in a different state. They are both operated as sole proprietor businesses within each state. In applying for the loan should it be done individually by state or together?
Thanks for this. An important issue that should be addressed is the eligibility of AirBnB/VRBO/HomeAway hosts who do not have employees on payroll. For example, my wife and I own an AirBnB. We are Sole Proprietors. My wife manages it, and it is the only income she generates. But she is not “on payroll.” On our taxes, this is taxed as self-employment income. So two important questions are:
1. Can we claim the income my wife makes through the ABnB as payroll?
2. If not, are we still eligible for the mortgage and utility payments portion of the program?
(2a) If yes to (2), would this loan be eligible for forgiveness?
Thanks for any help you can provide!
Just a quick update in regards to how much you can get. You can get 2.5 times your average payroll costs. Payroll costs in this case are defined as salaries, sick leave, separation agreements, insurance premiums, retirement benefits or payment of state or local tax assessed on the compensation of employees.
The forgiveness portion DOES take into mortgage, rent, and utilities.
I file a schedule E for my tax returns for vacation rentals and long-term rentals. I have not found a bank that will accept the schedule E, only schedule C. I know MANY people in this situation who cannot find a solution if they file a schedule E.
Can you please tell me how I can get around this, since your article says “pretty much everyone in the vacation rental industry qualifies”? I would love for this to be true and I am trying from every angle, but have not found a solution. My 3 units make are a large part of my personal income and the Florida government continues to ban us from operating until possibly “Phase 2” and then we would be allowed to rent to only Florida residence. I can’t imagine we would be eliminate when we are intentionally shut down by the government, unable to produce income.
Great info Brooke, they’ve updated and made this active today:
https://covid19relief.sba.gov/