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    Hospitality & Events | 4 min read

    How the CARES Act Will Benefit the Hospitality Industry

    Hospitality businesses around the world have taken a huge hit as a result of the coronavirus pandemic. The US hotel industry is predicted to experience a 50.6% decline in revenue per available room (RevPAR). Employees in the industry have also been severely affected. The US hotel industry is projected to lose 4 million jobs, with North Carolina already reporting a loss of 370,000 jobs. Even if employees have not been laid off, many have been furloughed. This includes employees of hotel giants Hyatt and Mariott.

    The primary reason these businesses have been hit so hard is due to its heavy dependence on the physical presence of its customers. Furthermore, these businesses are also reliant on the travel industry, which is in rapid decline as well. Many airline companies have grounded most of, if not their entire fleet. With lockdowns and quarantines implemented across the world, there’s very little businesses can do to find alternative revenue streams.

    Government Aid

    The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Mar 27 2020. Under the $2 trillion relief fund, many hotels may be eligible for a slice of the $350 billion forgivable loans pie. The act expands the Small Business Administration’s (SBA) current 7(a) loan program, creating the Paycheck Protection Program (PPP) to help eligible businesses pay for various expenses. These costs  include rent, mortgage payments, payroll (including paid sick or medical leave), health benefits, insurance premiums, and other operational costs. 

    Businesses will qualify for the loan under certain conditions:

    1. They employ less than 500 employees per physical location.
    2. Each location has been assigned to the “accommodation and food services” sector (with a North American Industry Classification System code beginning with 72).
        • Normally, the SBA has a set of affiliation rules that will aggregate a loan applicant together with all of its affiliates when determining the number of employees.
          • However, these affiliation rules can be waived with respect to any business with a North American Industry Classification System code beginning with 72, and any franchise business assigned a franchise identifier code by the administration.

    The industries with NAICS codes

    Meanwhile, loans may even be forgiven if the businesses fulfill certain specific criteria as well:

    1. Under the bill, loan recipients are entitled to loan forgiveness for the amount equal to the sum of all costs, for the covered eight-week period after the loan has been given out.
        • These costs include: payroll costs, interest payments on any covered mortgage, payments on any covered rent obligations and any covered utility payment.
    2. Those who hire tipped employees can get debt forgiveness on any additional wages paid to them between March 1, 2020 and June 30, 2020.
    3. However, do note that loan forgiveness amounts will be reduced by:
        • The percentage reduction in the number of full-time employees during the covered period.
        • The amount of any salary or wage reductions of greater than 25% for certain employees. 
          • This excludes employees who were rehired or whose salary or wages are restored by June 30, 2020.

    Is it enough?

    The American Hotel & Lodging Association (AHLA) and Asian American Hotel Owners Association (AAHOA) have both praised the US government for their efforts. However, this is not without minor criticisms. 

    AHLA President and CEO Chip Rogers said that the CARES Act is “unworkable for hoteliers.” The AHLA mentioned that the Act currently limits SBA loans to 250% of average monthly payroll, but that this isn't enough to allow an operator to meet both payroll and debt obligations beyond the estimated four to eight weeks. Rogers further elaborated that the reality facing hoteliers is the single-digit occupancy which is unlikely to change in the near future. This would in turn increase the huge debt already incurred by the hospitality industry.

    He further added that the short-term revenue projection businesses such as hotels in the hospitality industry is zero, and urged the government to improve the aid.

    Visit the Workstream blog for more resources and information on how businesses can lessen the blow dealt by the effects of the coronavirus pandemic. 

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    Hospitality & Events

    Nigel Seah

    Nigel is not just a marketer at Workstream, he is also a graduate of Psychology and Marketing of Singapore Management University. He has multiple experiences in various areas of marketing - advertising, email marketing, and content writing. Fun fact, prior to joining Workstream, he took a semester off school to intern at SAP in Brazil.

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