Recovery Funding Options for Tour Operators During Coronavirus

It’s often said that ‘change is the only constant.’ Unfortunately this adage is all too familiar to our clients right now. Giving you the most accurate information possible is always our main goal, and know that at the time this was published, all of this information was accurate. We will do our best to update as the situation and rules evolve, but know that we might not catch every change that occurs during this proverbial tidal wave!

If you missed our Recovery Funding for Tour Operators webinar with Duane Zobrist of Resort Outfitters on Wednesday, April 1st, you can find the recording in its entirety here. We tried to condense a very informative and information-filled presentation into this post, but definitely did not include everything. Have a listen to the presentation for additional details.

Useful Links

• For Economic Injury Disaster Loans (EIDL), apply at SBA.gov.
• For Paycheck Protection Program loans (PPP), apply through a local lender or you can use www.7arelief.com to apply with Fountainhead.
• Frequently asked questions by borrowers through PPP.
• Application for PPP to be submitted to your SBA Participating Lender.

General Questions

Can I get an Economic Injury Disaster Loan (EIDL) and a Paycheck Protection Program Loan (PPP)? 

Yes, you can get both loans, but the key is to use the money to cover different expenses.

As a reminder, EIDLs can be used to cover:

• Paid sick leave to employees unable to work due to the direct effect of COVID-19.
• Maintain payroll after June 30th
• Increased costs due to supply chain disruption
• Rent or mortgage payments 
• Repaying obligations that cannot be met due to revenue loss 

PPP loan funds can be used to cover: 

• Payroll costs
• Group health care benefits during periods of paid, sick, medical, or family leave, and insurance premiums. 
• Interest on a mortgage obligation 
• Rent, under lease agreements in force before February 15, 2020 
• Utilities, for which service began before February 15, 2020 
• Interest on any debt incurred before February 15, 2020 
• So, if you’re getting an EIDL to cover payroll expenses, you can’t get a PPP to cover payroll for the length of the forgiveness period (eight weeks from when the loan is due). You would have to use the EIDL for different operating expenses or payroll for a different period. This will also go for other state or local assistance.

That being said, you don’t have to have both. If you’ve already gotten an EIDL for payroll purposes but just want the PPP loan, you can refinance the loan into a PPP. Any amount that was given to you as a grant under the EIDL will reduce the amount forgiven under PPP. 

Economic Injury Disaster Loan (EIDL)

How much money do they have available to give out as part of this program?

$50 billion.

What is the maximum amount of the loan?

Up to $2,000,000.

What are the terms of these loans?

10 year to 30 year at 3.75% interest rate.

What kind of collateral is required?

Under $200,000 only a UCC against the company’s assets will be filed. Greater than $200,000, personal guarantees and colleralization where available will be required.

What is the timeline for these loans?

Though it may be difficult right now to believe, the official statement is that within three days they will give you a $10,000 advance on the loan. This advance essentially becomes a grant if you don’t follow through with the rest of the loan. Though the process is likely not going to be as smooth as hoped, they have recently updated the website to streamline the application process. Experience has made some believe that they are quick to approve and not quick to fund. According to Fountainhead, “there are currently over 25,000 applications submitted with at least 3-week approval times.  As the number of applications grow, it is anticipated the approval times will be pushed out longer with funding coming several weeks after that.”

Paycheck Protection Plan (PPP) / Section 7(a)

What can these loans be used for?

Allowable uses of the loan include eligible payroll support (eligible employee salaries which excludes compensation above $100,000 in wages, paid sick or medical leave, insurance premiums, costs for vacation, family, parental leave), allowance for separation or dismissal, retirement benefit; interest paid on a mortgage (excludes any prepayment of or payment of principal) or rent; state and local taxes assessed on compensation; and utility payments. For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

According to the PPP Borrower Information fact sheet, “it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.”

What are the terms of this loan? Is there a fee?

There is a $0 fee for this loan. As long as you’re back to staffing level where you would normally be by the end of June, the loan is 100% forgivable if it has been used for ongoing expenses. (You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.) The loan is a 1%, 2 year amortization loan. The unforgiven portion will fully paid at the end of the two year period.

How do I calculate the amount?

Start by annualizing your wages, tips, healthcare, retirement, taxes on compensation, etc. Divide that by 12 to get your average cost per month, and then multiply by 2.5. This is your loan request amount. 

How do I get forgiveness on my PPP loan?

You must apply through your lender for forgiveness on your loan. In this application, you 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.

• 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.

Who qualifies for these loans?

Any business with 500 employees or less. For businesses in the hospitality and tourism industries, you can apply per location if the business has more than 500 employees per location.

Can I use the PPP loan to pay myself?

Yes. 

So employees can collect unemployment and the employer PPP at the same time?

If employees are receiving a full paycheck from the PPP loan, they are not eligible for unemployment benefits.

Is there collateral required?

No. These are unsecured loans.

Is liability insurance payments part of the allowable expenses?

They are not included in allowable expenses. It is recommended to reduce projections and figure out other payment plans.

Does the independent contractor apply for himself, or I can pay her out of what I am getting? If you apply for money for your 1099 staff, and they also apply, would it be considered double dipping?

1099 staff are able to apply for themselves and get paid from employer.

Would lease payments on vehicles be covered?

If you do use this money to pay for your vehicle leases, it becomes a 2 year loan. That being said, lenders want people to keep assets and are being very generous right now, so give them a call and see if you can work something out.

Can I only apply for one PPP loan at a time?

At this point, most banks are only taking applications from existing customers due to the fraud concern, so this isn’t even possible. If banks open up to non-customers, it is still not advisable to submit multiple applications. The regulations only allow for one PPP loan per business, therefore, applying through multiple banks could cause confusion or even fraud alerts down the line.

When can I apply?

Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

What if this crisis continues past June?

There are talks and potential plans to roll a second stimulus out, but no concrete plans as of right now.

• Small Business Owner’s Guide to the CARES Act
• U.S. Small Business Administration March 31st Press Release

We are going to do our best to stay on top of this situation as it undoubtedly evolves. Remember you can always contact us at TOMIS if you have additional questions or would like clarification about anything you read here. If you’re looking for tips on how to make sure your marketing digital foundation is ready to go when Coronavirus is but a memory, check out our Marketing Plan for Tour Operators during Coronavirus post.