Leaders in the travel and hospitality industries, in addition to small business owners across the country, have some serious problems with the Paycheck Protection Program (PPP).
Designed by Congress to provide financial relief to small businesses struggling during the coronavirus pandemic, the Small Business Administration (SBA)-managed loan program ran out of funding just two weeks after its launch. Last week, the program was replenished with an additional $310 billion, and loan processing resumed on Monday.
But the PPP’s inflexible terms and unequal distribution model has left many leading business groups and small business owners wondering if the program will really be able to help them at all — unless Congress can amend certain provisions in the next round of coronavirus relief legislation.*
Small business owner James Cummings, who owns 22 hair salons in Raleigh, North Carolina, says that 143 of his furloughed employees are earning more from unemployment benefits than they would if he paid them with funds from his PPP loan. This discrepancy in income gives them little to no incentive to return to work. Additionally, Cummings will only be forgiven for eight weeks of covered expenses (beginning at the time he receives the loan), which puts on added pressure to hire them back immediately.
The PPP was the right idea, but it was intended to be a short-term measure and needs structural changes to give businesses and their workers a real chance to survive.
“My eight-week period for loan forgiveness has already started, and I’m supposed to be hiring back my stylists right now,” he said. “Obviously, I’m not legally allowed to operate my business. We still don’t have any idea how Full-Time Equivalents are going to be calculated for forgiveness, and we still don’t have clarity on how they’re going to calculate wage payment forgiveness. No one needs to pretend this doesn’t present challenges to business owners.”
The American Society of Travel Advisors (ASTA) has petitioned Congress to amend this particular provision as it relates to retail travel agencies, expanding the forgiveness period from eight weeks to 12 weeks. ASTA is also asking that the aforementioned “forgiveness clock” begin running at the borrower’s discretion as opposed to when the loan is doled out.
Other PPP statutes — including a rule about how business owners can allocate funds — has proved to be especially problematic within the hospitality industry, which has already seen catastrophic losses since the COVID-19 outbreak.
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Case in point: The 254-room Hilton Garden Inn Seattle in Bellevue, Washington, was operating at peak performance (80% occupancy) at the end of February. In a matter of days, this figure plummeted into the single digits, and now sits at just 2%. Just 13 of 80 employees remain on-site, and revenue reports show that the hotel brought in $20,000 in April, which covers only 10% of its monthly mortgage payment.
Despite being a recipient of a PPP loan, the hotel may not last post-pandemic. This is mainly due to the fact that the PPP only allows 25% of funds to be distributed among non-payroll expenses such as rent and utilities, according to Doug Dreher, president and CEO of The Hotel Group, which manages the property.
“Clearly, the math doesn’t work,” he said. “If hotels are unable to make debt payments, let alone the many operating expenses, we may not be able to survive this crisis.”
The program’s duration also has issues. The PPP is currently set to expire June 30. However, Dreher and many others in the travel industry, including the U.S. Travel Association (USTA) and ASTA, believe it should be extended until at least the end of the year.
“The current deadline of June 30 is simply unrealistic, given that the majority of hotels are running below 20% occupancy, and many others have suspended operations with no end in sight,” Dreher said. “As much as we look forward to welcoming back our guests, we know this isn’t going to happen for a while. Given the high unemployment and devastating impacts to the economy caused by COVID-19, travel in general — as well as hotel demand — is likely to be adversely impacted for months, if not years, even after the health crisis subsides.”
Another problem? Many segments of the hard-hit travel industry were completely left out of the PPP, and currently have no customers nor revenue streams, says Tori Emerson Barnes, executive vice president of public affairs and policy for the USTA.
“The PPP was the right idea, but it was intended to be a short-term measure and needs structural changes to give businesses and their workers a real chance to survive,” she said.
One such segment are nonprofit entities that are vital to the health of the industry yet ineligible for relief, such as ASTA and convention and visitors bureaus (also called destination management organizations, or DMOs).
“DMOs are economic engines that drive large volumes of visitors and their spending into local economies,” Emerson Barnes said. “They are experts on their local markets. They promote and sell their cities and destination facilities for lucrative conventions, trade shows and businesses, and promote events and attractions for leisure travelers as well.”
“Even travel businesses and jobs that are saved now won’t make it through the recovery without the work of DMOs to bring back travel demand once the economy reopens,” she said.
Meanwhile, several healthier industries have been moved to the front of the line when it comes to receiving funds — another serious shortcoming of the program.
“According to the SBA, only 9% of restaurants and hotels received PPP loans, putting them in fifth place for the segments getting the majority of the loans,” said Brian Crawford, executive vice president of government affairs for the American Hotel and Lodging Association. “Construction is the No. 1 recipient, which I think speaks to the fact that Congress needs to define which industries are severely impacted by COVID and ensure healthier industries are not able to access these funds — taking ability and opportunity away from those industries seeing catastrophic impact.”
So, let’s pump the brakes and recognize that when you have millions of different businesses seeking relief, any attempt to create a one-size-fits-all spending solution is a recipe for disaster.
The USTA, ASTA and several other organizations representing small businesses have petitioned Congress about making necessary changes to the PPP (and others) ahead of the Senate and House of Representatives’ return to Washington, D.C., in the coming weeks.
And when lawmakers do reconvene, small business owner Cummings has a poignant message for them.
“We do not need to screw this up just because we want to go fast,” Cummings said. “We now know the shutdown is going to go a lot longer than anyone anticipated when the CARES Act was written in March. So, let’s pump the brakes and recognize that when you have millions of different businesses seeking relief, any attempt to create a one-size-fits-all spending solution is a recipe for disaster.”
Send a Message to Congress
Have an issue with the PPP? Make your voice heard in Washington, D.C, by using ASTA’s advocacy portal.
*Editor’s note: Information was gathered for this story from an April 30 press conference hosted by The Economic Innovation Group (a bipartisan business advocacy organization based in Washington, D.C.) and several leading travel industry groups including USTA, American Hotel and Lodging Association and The Hotel Group.
Read more from TravelAge West about the COVID-19 outbreak.