By Jason Garcia Orlando Sentinel
WWR Article Summary (tl;dr) Are small businesses getting crowded out of the only economic rescue lifeline they have? Jason Garcia takes a closer look at who has been able to tap into the $350 billion dollar "Paycheck Protection Program."
Large hotel, restaurant companies getting small-business loans want to spend less of the money paying workers
The Pennsylvania investment firm that owns the Ritz-Carlton Coconut Grove in Miami has applied for as many as 48 taxpayer-backed loans under an emergency program meant to help the nation's smallest businesses hang on to their employees through the coronavirus pandemic.
A Maryland hotel company that did more than $1.5 billion in revenue last year has applied for more than 50 loans, and been approved for about 10 so far.
And Florida-based Ruth's Hospitality Group Inc., the parent company of Ruth's Chris Steak House that made $42 million in profits last year and spent $41 million buying back stock and paying dividends to shareholders, revealed Monday that it has received $20 million through two small business loans.
Across the country, hotel and restaurant companies of all sizes are tapping into the "Paycheck Protection Program," the $350 billion fund that Congress set up specifically for small businesses as part of an overall $2.2 trillion economic rescue plan.
Midsized and large hoteliers and restaurateurs are qualifying for the potentially forgivable loans, more than one, in many cases ? under special rules written into the program at the request of industry lobbyists, who argued that hospitality businesses have been uniquely devastated by coast-to-coast travel bans, shutdowns and shelter-in-place orders.
And now, as congressional leaders negotiate another spending bill that would add $250 billion or more into the PPP program, hotels and restaurants are pressing lawmakers to loosen the rules around how they are supposed to spend that money.
They have asked to spend less of their PPP loan proceeds on wages for workers and more on other expenses, such as mortgage principal or franchise fees that get paid to larger companies like Marriott International Inc. and McDonald's Corp. They want to wait longer before they must rehire employees who have already been furloughed or laid off.
At the same time, other hard-hit industries, from retailers to theme parks to gyms, are lobbying Congress to let larger companies in their sectors take out PPP loans, too.
It's not clear when Congress might act, but it could happen very soon. The Trump administration has warned the PPP fund could run out of money by the end of this week.
The lobbying blitz has infuriated some unions and other advocates for front-line workers, who say some big companies are attempting to twist a program meant to keep people employed into a pure corporate bailout.
"They want to make changes so that hotel owners can pay their debt off and pay their banks and their investors rather than actually put that money into the paychecks of workers," said Wendi Walsh, the secretary-treasurer of Unite Here Local 355, which represents hotel and casino workers in South Florida. "We are going to push back very hard on the industry to stop them making these kinds of changes and to push them to implement the program the way it was intended."
But even as they race to claim the money, many hospitality executives and lobbyists say the PPP structure right now is too rigid, especially given economic conditions that have worsened in the three weeks since the program was created. They say the entire program could backfire if businesses aren't able to pay all of their obligations or if they are forced to bring back workers before consumer demand warrants it.
"If there's no business for an employee to come back to, then those jobs will be lost forever," said Chip Rogers, the president and CEO of the American Hotel & Lodging Association. "The actual survival for many of these business is being called into question right now."
Under the Paycheck Protection Program, businesses can take out loans of up to $10 million to be repaid over two years at 1% interest rates, while providing little documentation and putting up no collateral. Borrowers don't have to make any repayments for the first six months.
But what makes the program especially appealing is companies don't have to repay the loans if they meet certain conditions. To get the entire debt forgiven, they must spend at least 75% of the loan proceeds paying workers, and they can't reduce wages by more than 25 percent. They can't cut their total number of jobs, either. Companies that already laid off or furloughed workers must rehire them by June 30.
Congress meant the loans mainly for businesses with 500 or fewer employees. But they agreed to make a handful of exceptions to that limit, including allowing individual hotels and restaurants to be counted as if they were separate companies, even if they are ultimately controlled by the same owner.
Choice Hotels International Inc., the lodging industry giant that has franchised more than 7,000 hotels under brands like Clarion and Comfort Inn, has said it was one of the companies that lobbied lawmakers for that provision.
That exception is how a business such as Dave & Buster's Entertainment Inc. has been able to apply for a PPP loan. The restaurant and arcade operator, which spent more than $300 million last year on stock buybacks and dividends, said in investor filings that it has applied for $10 million, the maximum amount for any single loan.
Other companies have applied for more than one loan, including Condor Hospitality Trust, which owns 15 hotels, including a Hampton Inn & Suites in Lake Mary. All of Condor's hotels are affiliated with Marriott, Hilton Worldwide Holdings Inc. or InterContinental Hotels Group Plc., according to regulatory filings.
Then there's Hersha Hospitality Trust, a Pennsylvania-based real-estate investor that owns 48 hotels around the country, including the Ritz-Carlton Coconut Grove, the Cadillac Hotel & Beach Club in Miami Beach and four others in and around Miami. The company disclosed in investor filings that it has applied for loans for each of its hotels.
Executives at Hersha did not respond to requests for comment.
There's no question all hospitality businesses have been hit hard. Hersha, for instance, said in the same regulatory filing that 19 of its hotels have closed indefinitely and that its others are operating with a "skeleton staff."
But the company also assured investors that it has enough money under a private line of credit with Citbank and Wells Fargo to survive into 2021, even under a "severely disrupted scenario."
That points to one of the problems with letting larger companies into a small business lending program when the there is only a finite amount of money to go around, said John Lettieri, the president and CEO of the Economic Innovation Group, a Washington-based think tank. Small businesses could end up getting crowded out of the only lifeline they have.
"Larger firms, by definition, have a different palette of resources that they can access and different things to fall back on in terms of their investors or what kind of collateral they can put up," Lettieri said. "Whereas very small businesses, many of them have no current banking relationship at all on the business side." ___ Distributed by Tribune Content Agency, LLC.