A cornerstone of the federal government’s $2 trillion Cares Act, the $349 billion Paycheck Protection Program (PPP) was touted as a lifeline for many small businesses, including hotel owners, when it was signed into law in late March.
By mid-April, however, it became clear that the program — designed to help companies cover payroll by granting forgivable loans through the Small Business Administration — was deeply flawed. After opening its application process on April 3, the PPP’s initial funding ran dry in just two weeks, leaving many small businesses and their employees in the lurch.
“We’ve been hearing that many boutique hotels haven’t received any money,” said Frances Kiradjian, founder and CEO of the Boutique Lifestyle Leaders Association, which counts approximately 300 independent hotels among its membership.
According to Daniel Innis, professor of marketing and hospitality management at the University of New Hampshire’s Peter T. Paul College of Business and Economics, the PPP’s rollout has been “a mess.”
“I think a lot of small businesses thought, ‘I have a couple days to apply for this,’” Innis said. “But the money disappeared so quickly.”
American Hotel and Lodging Association CEO Chip Rogers called industry reaction to the PPP “a strange combination of both gratitude and concern.”
“Everyone was happy that Congress did something historic, but I think the exuberance started to fade when it was difficult to get an application in,” said Rogers. “There are a lot of hoteliers that still don’t know if they’re going to get funded. If you look at the percentage of money that went to hotels and restaurants, it was less than 9% of total PPP funds. Even if it were 9% of the funding for hotels alone, that would not have been enough.”
Hotels that missed out on the initial PPP funding will likely get a second chance. On April 21, the Senate approved an additional $484 billion in coronavirus relief, with $310 billion of that sum reportedly earmarked for the PPP. The House was expected to approve the new aid package on Thursday.
“I hope things get distributed more evenly this second time around,” Kiradjian said. “But the biggest fallout here will come from [bad] press. Looking at social media, people are really mad.”
Scores of publicly traded companies received taxpayer-funded PPP loans, including restaurant chains such as Ruth’s Chris Steak House and Shake Shack. Following public outcry, Shake Shack CEO Randy Garutti announced that the company, which has more than 375 restaurants, would be returning its $10 million PPP loan.
Ruth’s Chris and other publicly traded companies will be returning their PPP loans, too. The Treasury Department on Thursday ordered large enterprises to return the aid by May 7.
To be eligible for a PPP loan, a small business must have fewer than 500 employees “per physical location,” though that limit doesn’t take into consideration any larger brand affiliations.
“Shake Shack did not break the law in any way,” said Steve Carvell, professor of finance at Cornell University’s SC Johnson College of Business. “But should a firm as large as Shake Shack access these loans? If you’re asking me, I’d set that [top limit] at below 500. Though it’s difficult to say what the right number is. Because to an employee of any company on that [publicly traded] list, their job is no less valuable than any other job in the country.”
Whether franchised hotels come under similar scrutiny remains to be seen. While large hospitality companies such as Marriott International and Hilton Hotels & Resorts aren’t eligible for PPP loans, hotels that fly their flags can qualify.
Phocuswright senior research analyst for lodging and leisure travel Robert Cole said the typical U.S. hotel operates as “an independent business,” under ownership that can range from a large real estate investment trust or corporation to a sole individual.
“That owner could also hire a third-party management company,” Cole said. “Additionally, they may elect to sign a franchise agreement with a major brand. The reality is that the business landscape is complex.”
Consequently, a hotel that’s managed by a large corporation or branded under a major flag could come under fire for receiving a PPP loan, even if the property’s owner qualifies as a small business.
“With modern media, perception is reality,” added Cole. “On the surface, it doesn’t seem fair to the little guy. However, it also doesn’t make much sense that a couple who took their life savings to own and operate a Fairfield Inn should somehow be prohibited to participate in the PPP loan program.”
Meanwhile, for some small hoteliers, taking on a PPP loan, which must primarily go toward keeping workers paid, could simply have been too difficult a commitment to make.
“I’ve talked to small-business owners who said they didn’t want the money because the terms are just too onerous,” said Innis. “I think Congress had the intention of protecting employees. But it’s using the business almost as an unemployment agency. That’s not enough to protect a business’ viability.”
Rogers agreed that additional changes to the PPP system should be made, with hotels in particular requiring a loosening of some of the program’s more restrictive policies. According to Rogers, chief among these is a stipulation that small businesses must have the same number of employees on the books by June 30 as they did on Feb. 15, in order to have their loan forgiven in full.
“The reality for many hotels, however, is that people were already off the payroll by the time the plan was implemented,” explained Rogers. “Hoteliers are saying, ‘There’s no way I’m going to get my full staff back on board by June 30. I have no customers, no revenue.’ What we’re asking Congress to do is move the June 30 date. Give hotels flexibility to take the money now and then push the date back a bit to, say, October 31.”
Also, the American Hotel and Lodging Association and other travel trade groups have also argued that the Cares Act does little to help small operators handle fixed costs, including property taxes.
“New York City’s property taxes are, on average, 11% of last year’s revenues,” said Vijay Dandapani, president and CEO of the Hotel Association of New York City. “On this year’s revenues, it’ll be 1000%, because you’ve got zero coming in. If the Cares Act had addressed property tax, it would have been a massive help.”
Dandapani added that despite many member hotels applying for the PPP loans, he has yet to hear of any successfully receiving one.
But while the PPP’s launch has been far from perfect, Cornell’s Carvell asserted that the program is not entirely without its merits.
“When you show up to the emergency room, the first thing they do is stabilize you,” Carvell said. “Our economy, in the moment these decisions were being made, was in the emergency room. [The government] did what they had to do right away. You can’t let perfect get in the way of good.”