Paycheck Protection Program Explained – For Events and Hospitality Businesses
As a proud member of the events industry, I will start by saying how much empathy and collective pain I feel for all of us. Our businesses are quiet and dark, and being someone who has attended thousands of events in his lifetime (let alone built a business in the hospitality industry), this kind of silence is something I never thought I would witness or experience.
But we must make sacrifices in the next few months to save lives in our communities and come out of this sooner rather than later. And for me that's well worth whatever short-term price my business and I personally have to pay for the next few months.
I am using this time to both personally and professionally reflect on the things I am thankful for (my family, my staff, my friends, my two loveable dogs, my community, my home) and to prepare to grow like hell when we are all finally out of this cage.
Which brings me to the subject at hand ... how can event venues, restaurants, hotels, event planners and event planning firms get some financial relief in these dark times.
Enter the Small Business Administration's Paycheck Protection Program Loan (PPP for short).
If you have had to shut down your event or venue operations, furlough or lay off staff, cut expenses dramatically or fear for the financial survival of your events business, you aren't alone ... and you should seriously consider applying for the Paycheck Protection Program loan.
DISCLAIMER: I'm not an attorney or a financial advisor, so for god's sake don't take any of this as legal or financial advice. And I cannot absolutely guarantee everything in this article is completely accurate as I'm just going off what the SBA and Treasury Department have released so far. But with that said...
First off, where did we get this information?
On April 2, 2020, our lender passed along the latest version of the SBA Interim Final Rule guidance on the Paycheck Protection Program or PPP. And you can read it in full here.
When is the deadline to apply?
June 30, 2020 … but loans are first-come, first served, and once all $349 billion is loaned out, then the well is empty (until Congress decides to refill it).
So you should probably APPLY NOW if you want a chance at this loan.
And since you cannot apply for more than one PPP loan, so you should consider applying upfront for the maximum amount for which you are eligible. Which begs the question…
Are you eligible?
Generally speaking, you are eligible:
- If you have 500 or fewer employees who live in the United States.
- If you were in business on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid 1099 independent contractors.
- If you are either small business as defined in Section 3 of the Small Business Act (15 USC 632); a 501(c)(3) tax-exempt nonprofit organization; a 501(c)(19) tax-exempt veterans organization; or a 31(b)(2)(C) Tribal business concern.
You are also eligible if you are an individual who operates a sole proprietorship or is an independent contractor or self-employed individual and you were in business on February 15, 2020. (If you are a solo event planner, this is you.)
How much can you borrow?
Technically up to $10 million, but let's take a step back first.
How much you can really borrow is based on this formula…
- Total up your payroll costs from the last 12 months for employees who reside in the United States. (You cannot include employees who reside outside of the United States.)
- Subtract any compensation for employees who have an annual salary of $100,000 or more (this includes sole proprietors and independent contractors).
- Divide this amount by 12 to determine your monthly allowable payroll costs.
- Multiply this by 2.5*
*If you have received any loans from the SBA's Economic Injury Disaster Loan (EIDL) program between January 31, 2020 and April 3, 2020, you need to add that outstanding amount to this total less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid). I don't really know what this means so ask your lender if it might apply to you.
There's a catch though (there always is). When calculating payroll costs, you can include:
- Salary, wages, commissions or similar compensation
- Cash tips or the equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for separation or dismissal
- Payment for benefits like group health care coverage, including insurance premiums and retirement plans
- Payment of state and local taxes assessed on compensation of employees
- And for an independent contractor or sole proprietor, wage, commissions, income or net earnings from self-employment.
But you cannot include…
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Social Security) and income taxes required to be withheld from employees.
- Qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.
Here's an example of how this would be applied…
Say I'm a restaurant and catering company. I have 10 employees with compensation under $100K, and when I total up their salary, commissions, tips, paid leave, health insurance premiums, retirement benefits and state/local taxes over the last 12 months, I arrive at $500,000.
And I have 3 employees that make $110,000 each. I basically cannot added these three to my calculation because their total compensation is more than $100K.
So I take that $500,000 and divide by 12, leaving me at $41.667.
And then I multiply this by 2.5, giving me a total of $104,168 that I can apply to borrow.
And please check my math while you're at it ;)
How much can be forgiven?
Here's the silver lining to the Paycheck Protection Program loan.
According to the SBA, "The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained."
What does this mean?
Well, the PPP was created mainly to help keep employees on payroll in the short term, but you can use the loan to pay for:
- Payroll costs as defined above
- Costs related to continuing group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Mortgage interest payments (but not mortgage prepayments or principal payments)
- Rent payments
- Utility payments
- Interest payments on any other debt obligations that were incurred before February 15, 2020
- Refinancing an SBA EIDL loan (made between January 31, 2020 and April 3, 2020)
However, not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
So if you want the full loan to be forgiven:
- 75% or more must be used for payroll costs, and not more than 25% for the other non-payroll costs mentioned above.
- Forgivable costs must be incurred within the 8 weeks immediately following the date of the loan.
- You must keep the employees included in your calculation on payroll for the 8-week period and at their full compensation levels.
- You must apply for loan forgiveness through your lender.
So just make sure to keep track of all these costs because you are going to have to apply for loan forgiveness through your lender after the 8-week period, and you will need payroll records, mortgage/rent payment receipts, etc. in order to apply for forgiveness.
What if the loan isn't forgiven? What is the interest?
The interest rate is 1% with a maturity date of 2 years.
So if your loan or part of your loan isn't forgiven, you have 2 years to pay off the balance at a 1% interest rate. And payments aren't due for 6 months following the date the loan amount is disbursed to you. (However, interest will continue to accrue on PPP loans during this period.)
Still a great deal, but if you can apply for loan forgiveness, that's even better.
Where do you apply? And what hoops do you need to jump through?
Generally, PPP loans are being handled by banks and financial institutions that are already approved as SBA 7(a) lenders. You should reach out to your current bank to find out if they fall into that category (if not, here's a list of the 100 most active SBA 7(a) lenders).
As far as hoops go, the PPP loan doesn't have that many.
First, you must submit an SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation through your lender.
You must also be prepared to submit whatever other documentation is necessary to establish eligibility such as number of full-time employees on payroll; payroll processor records; payroll tax filings (or Form 1099-MISC) or income and expenses from a sole proprietorship; covered mortgage interest payments; covered rent payments; and covered utilities for the 8-week period following this loan.
However, no collateral and no personal guarantees will be required.
Whew ... so much for a "simple" process.
Just let us know if we missed anything here and we will make updates as we learn more. We truly wish you and your family and staff good health and a firm resolve to come out of this stronger and more resilient than ever.
Thanks for being part of this great industry, and hang in there,
Jeff Kear, CEO