The coronavirus has been financially devastating for hosts. While you’ve probably heard a lot about individual stimulus checks and expanded unemployment benefits, here’s a quick look at 2 additional ways that the $2 trillion stimulus bill that just passed on Friday might offer some much-needed relief to help keep short-term rental businesses alive until travel resumes.
Payment Protection Program: Forgivable Interest-free Loans
The stimulus bill allows special SBA-administered loans that will be interest-free with no SBA fees and no payments for at least 6 months and deferrals for up to one year. (The maximum term is 10 years, the maximum interest rate after the initial interest-free period is 4 percent and there are no loan or repayment fees).
Any business in the United States that was in operation as of February 15th, 2020 with fewer than 500 employees is eligible for the loan. Most professional hosts who have payrolls, including those on Airbnb and Vrbo, should be eligible, since not only incorporated businesses, but also self-employed individuals, independent contractors, and sole proprietors are also eligible.
|The maximum loan size, not to exceed $10 million, will be calculated in the following ways: |
If you were in business February 15, 2019 – June 30, 2019: You may qualify for a loan of up to 250% of your average monthly payroll costs during that time period. If your business employs seasonal workers, you have the option of choosing March 1, 2019 as your time period start date, instead.
If you were not in business between February 15, 2019 – June 30, 2019: You may qualify for a loan of up to 250% of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you wish to refinance that loan into a PPP loan, you could add the outstanding loan amount to the payroll sum.
For the purposes of PPP, “payroll costs” include:
|• Compensation of owners/employees residing principally in the United States of up to $100k (salary, wage, commission, and payment of tips)|
• Payment for vacation, parental, family, medical, or sick leave
• Allowance for dismissal or separation
• Payment for the provisions of group health care benefits, including insurance premiums
• Payment of retirement benefits
• Payment of State or local taxes assessed on employee compensation
In addition to the above payroll costs, these loans can be used to pay interest (though not principal) on any mortgage obligation, rent, utilities and any debt obligations that were incurred before the covered period. So these loans can help hosts keep making mortgage and rent payments on their units!
The loan also has an element that is forgivable, meaning that it never has to be paid back, for all of the above allowable expenses made during the “covered period.” This period is eight weeks, chosen by the small business owner and the lending agency, between February 15, 2020 and June 30, 2020. So essentially hosts can get a grant to pay to keep most of their business running for 8 weeks.
If hosts have to reduce payroll during the covered period, the forgivable amount of the loan will also be reduced proportionally. For example, if hosts cut back half of their workforce, the forgivable amount of the loan will be reduced by 50%. If employee salaries were reduced by more than 25%, the loan will be reduced proportionally. But, if all employees are rehired and their full salaries restored by June 30, no reduction of loan will occur.
To expedite the loan process, personal guarantees have been waived. All that is required is a “good faith certification” that your business has been affected by the COVID-19 pandemic, and that the funds will be used according to the guidelines.
Economic Injury Disaster Loans and Grants
In addition, hosts operating small businesses (under 500 employees) who have been in business since at least January 31st may qualify for Economic Injury Disaster Loans, which are low interest loans of up to $2 million (with principal and interest deferment available for up to 4 years) that can be used to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. Within 3 days of applying for the loan, you can also request an advance grant of up to $10k, which you will still receive even if the loan is denied and which you will never have to repay. This grant can be used to keep employees on payroll, to pay for sick leave, and to pay business obligations, including debts, rent and mortgage payments.
We hope this information has been helpful. Since this stimulus package was just passed, information is still coming in about how these programs will be administered and how hosts can utilize them. Be sure to check back for updates!