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.
- 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
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.
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.