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COVID-19: Resources Available for Hospitality Businesses

As the hospitality industry is facing periods of change and adjustment in the face of COVID-19, staying informed on the latest developments is of great importance.

Many resources and communications on COVID-19 are hitting inboxes each day as developments change at a rapid pace. With that in mind, our Hospitality Services team has summarized a list of resources for impacted businesses during this challenging time. Since guidance is changing rapidly, and in some cases daily, always keep in mind the date of the guidance you are reviewing.

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View Withum’s on-demand webinar: Impact of COVID-19 on Business and Tax

Loan Programs Available for Hospitality Businesses with Less than 500 Employees

There are multiple programs offered to small businesses (employers with less than 500 employees) or certain hotel entities.

The Coronavirus Aid, Relief and Economic Security (CARES) Act outlines additional robust support for both individuals and businesses.

  • Temporary revision to the 7(a) Loan Program offered by the SBA is titled the Paycheck Protection Program (PPP). Highlights of provisions included in the PPP, including eligibility, maximum loan amounts, limitations and other resources can be found here.
  • The CARES Act authorizes the SBA to guarantee up to $10 million in SBA 7(a) loans to businesses with not more than 500 employees or the applicable size standard established by the SBA for the industry in which the business operates, if greater.
  • As of now, the loan period for this program would begin on February 15, 2020, and end on June 30, 2020. Under certain circumstances, a portion of this loan may be forgiven.
  • The applicant applies for this loan with an SBA Approved Lender.
  • Under recently released SBA guidelines, the term of the loan will be 2 years at an interest rate of 1%. Additionally, interest payments may be deferred for 6 months, although interest does accrue during that period.

SBA’s Economic Injury Disaster Loan Program (EIDL) provides financial assistance to small businesses, providing vital support for those in the industry experiencing temporary loss of revenue.

  • The EIDL Loan program provides businesses with SBA 7(b) working capital loans of up to $2 million. The application is available online through the SBA website.
  • Applicants must be able to prove economic injury to qualify for this loan.
  • The applicant applies online for this loan directly with the SBA through the SBA website.
  • An emergency grant is offered to allow an eligible borrower an advance on the EIDL of up to $10,000 within three days of applying. The applicant would not be required to repay the advance payment, even if the SBA denies the loan or the applicant withdraws the loan application. If an applicant receives this grant, then subsequently receives a PPP loan, the $10,000 will be rolled into that loan and will “not be considered for forgiveness”, which means it will need to be repaid.

The PPP application is available and applications began on April 3, 2020, though some banks are still not accepting applications. It is still unknown how the SBA intends to allocate and disburse funds. Based on various discussions with SBA lenders and what we are seeing in the applications, we recommend businesses compile information including the following:

  • 2019 financial information (balance sheet and income statement)
  • 2019 tax returns
  • Financial projections for the next 12 months
  • Ownership information
  • 2019 and Q1 2020 IRS Quarterly payroll tax reports
    • If your business uses a management company or PEO to provide employees, contact them now for the equivalent of this information.
  • Last 12 months of payroll reports beginning with your last payroll date.
For more information or questions on how these items might impact your organization, please contact a member of Withum’s Hospitality Services Group.

Payroll Tax Credit and Deferral

The CARES Act includes a provision where businesses are allowed a credit against payroll taxes for qualified wages, including amounts paid towards health insurance, not exceeding $10,000 in wages per employee for a maximum tax credit of $5,000 per employee. It covers wages to be paid to employees from March 13, 2020, to December 31, 2020, if 1) the business is partially or fully suspended due to a COVID-19- related shut-down order or 2) receipts declined more than 50% when compared to the same quarter in 2019.

If a business has more than 100 full-time employees, then the credit is available only for the time the employee is not working. If the business has 100 employees or less, the credit is available for all employees.

The Act provides a grace period for the payment of payroll taxes owed for 2020: 50% of the taxes can be deferred to the end of 2021 and 50% by the end of 2022.

These employee retention credits are not available if a business obtains a loan under the PPP, and the payroll tax deferral is not available if a business obtains a PPP loan and then obtains any forgiveness of the loan. Although these two rules are written differently, the standards are effectively the same because virtually all taxpayers receiving a PPP loan will receive some amount of loan forgiveness. There credits and deferrals are available to businesses that obtain an EIDL.

Immediate Actions to Consider

  • Contact your payroll company in relation to the following items:
    • Payroll tax deferrals relating to the CARES Act.
    • Sick Pay Bill passed prior to the CARES Act.
  • Be in constant communication with your bank
    • Discuss the status of the PPP application or what documents may be needed to apply.
    • Consider speaking with your bank to discuss changes to terms of existing debt facilities.
  • File for the EIDL loan (non-forgivable) online if you would like.
  • Start gathering the quantitative and qualitative information noted above for the PPP.

As of this brief’s release, these questions have been posed to regulators by approved lenders and responses are pending.

  • Do entities qualify if their employees are provided by a management company under a management agreement or outside third-party (e.g. leased employees)?
  • If eligible, who should apply for funding under such an agreement (the management company who employs the property workers, or the entity where the employees work)?
  • If eligible, how is the loan amount calculated (cost of services incurred by the management company, portion of fees paid to management company allocated to payroll, costs to lease employees excluding or including service fees)?

Although we are getting clarity on questions as they relate to businesses in the hospitality industry, including timeshares, resorts, hotels and owner associations, there is still uncertainty the latest developments and many pieces of this complex legislation. Final regulations are expected soon. For more information on this topic, please contact a member of the Hospitality Services team and visit Withum’s COVID-19 Resource Center for insights to help you and your business during this challenging time.

Hospitality Services

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