13 Abr Paycheck Protection Program for Hotels
The Paycheck Protection Program is aimed at helping businesses keep their workforce employed during the Coronavirus (COVID-19) crisis. Provided by the U.S. Small Business Administration, the SBA will forgive these types of loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The Paycheck Protection Program will be available through June 30, 2020. After filling out your application, reach out to your lender to continue the submission process. For more general information on the PPP, visit http://mcallen.org/wp-content/uploads/2020/04/PPP-Guide-Full.pdf.
FAQ For Hotels
Who should apply for the loan – the hotel management company or the hotel owner?
Within the CARES Act, it is not clear whether Congress intended the loan recipient to be the hotel manager, who is commonly the employer of the hotel employees, or the hotel owner, who commonly bears the cost of payroll through the terms of the hotel management agreement. However, the eligible uses of the PPP loans (see above) are in most cases costs that the hotel owner is required to pay, either directly or through the terms of the hotel management agreement; accordingly, common sense would dictate that the hotel owner can apply as it has the payment obligations for these costs. We note that Hilton has taken this position as well, in a communication to owners of Hilton-managed hotels encouraging the hotel owners to apply for PPP loans directly. Where the hotel owner is not the employer of the hotel personnel, a hotel owner applying for a PPP loan may want to include an explanatory note that, although payroll is reported under one EIN (the employer’s), the applicant is contractually obligated to pay the payroll costs.
The hotel is owned through a REIT structure – which entity should apply for the loan?
Frequently the real-estate owning entity (the Property Company or PropCo) is responsible for mortgage payments while the taxable REIT subsidiary that is the tenant (the Operating Company or the OpCo) is responsible for paying rent (to the OpCo), utilities and payroll costs (through the contractual obligations in the management agreement). As the OpCo is responsible for paying the bulk of the costs that are eligible uses for the PPP loan (and the rent is likely flowing through to the PropCo to pay the mortgage interest), our recommendation is to have the OpCo apply for the loan.
If I have laid off employees and now can re-hire them with this loan, do I have to re-hire them right away?
The terms of the program incentivize business owners to re-hire as soon as possible (which is consistent with the goals of the CARES Act). Although the entire loan does not have to be spent in any particular time-frame, only the amounts spent in the eight (8) weeks after the loan is issued will be forgiven. Furthermore, full loan forgiveness is conditioned on maintaining employee counts and, to this end, allows for laid off employees to be rehired to achieve full forgiveness. Finally, new in the SBA regulations from April 2nd, at least 75% of the loan must be used for payroll costs (see #5.d below), which combines with the forgiveness provisions to strongly encourage rehiring.
Are the federal employer paid portion of payroll taxes also forgiven? That is, federal withholding, Social Security, Medicare?
The following expenses cannot be included in loan forgiveness:
- Any compensation over $100,000 per employee
- Taxes imposed under chapters 21 (payroll taxes), 22 (railroad taxes and retirement benefits), and 24 (income taxes withheld on wages) of the Internal Revenue Code
- Compensation of employees whose principal place of residence is outside the United States
- Qualified sick and family leave for which a credit is already allowed under other sections (i.e., 7001 and 7003) of the Families First Coronavirus Response Act
- Loans used for duplicate purposes of another SBA loan program already claimed by the applicant
Can a hotel use the PPP loan proceeds to pay other expenses like insurance premiums, franchise fees, or property taxes?
If you use the PPP loan proceeds for other hotel operating expenses aside from what is eligible, this portion of the loan will not be forgiven. When you apply through your lender for forgiveness on your loan, the application must include:
- Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings;
- Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities; and
- Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.