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Is There a PPP Loan for Rental Property Owners in 2023?

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On May 31, 2021, Paycheck Protection Program (PPP) loans, issued as relief to small businesses struggling financially due to the COVID-19 economic crisis, ended. The PPP program was initiated through the U.S. government's Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and disseminated over 600 billion dollars in loans.

Thus, the Paycheck Protection Program was also useful to many property owners in desperate need of financial assistance. As tenants struggled to pay rent on time, rent in part, or at all, landlords quickly lost income.

While the PPP program shows no sign of resuscitation in 2022 or 2023, many small business owners, landlords and property investors are still eligible for loan forgiveness. If you're a property investor, real estate business owner, or successful luxury rental investor, you may be able to capitalize on loan forgiveness.

It's important to first overview how the PPP loan program worked and how such forgiveness might apply to you today.

How the Paycheck Protection Program Impacted Property Owners

Many business owners, entrepreneurs, and self-employed workers received PPP loans to help offset the financial burden of the pandemic. Beginning March 2020, the CARES Act PPP loan program was used to distribute two rounds of PPP loans.

Small business owners received as much as 2.5 times the value of monthly payroll costs. These final amount determinations for PPP loans were based largely on tax return data from 2019 and 2020. This loan program distributed forgivable low-interest loans for between eight and 24 weeks' worth of payroll expenses.

However, because losses on rent are not technically payroll expenses, a property owner did not directly qualify for a PPP loan for their rental property. That said, real estate owners could apply for PPP if they had hired employees (themselves included), a property manager, or others to manage tenants and maintain rental properties.

Moreover, struggling tenants unable to pay rent or make lease payments could also qualify for a PPP loan.

Why Property Investors Were Able to Receive PPP Loans

If applicants met the aforementioned criteria, they were eligible for a PPP loan for rental property owners.

Applicants could go right to the Small Business Administration (SBA) or an approved private lender. The SBA used a general application form whereas a private PPP lender used similar but unique forms.

Given the proper documentation and information provided, various individuals, businesses, and entities may have qualified for financial support through the CARES Act as well as other programs. These loans helped to cover payroll costs in addition to other costs, like retirement benefits.

 Incomplete and untimely applications were rejected.

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Who Received PPP Funds Through the Small Business Administration and Private Lenders?

According to the Small Business Administration, a few variables impacted one's ability to capitalize on relief options. These factors included the type of information reported, the forms and documentation provided, and the legal tax status of the individual, business, or entity applying.

Authorized through the CARES Act, the Small Business Administration recognized the following eligible recipients of these loans:

  • Non-profit Organizations
  • Independent Contractors
  • Partnerships
  • Self-Employed Laborers
  • S Corporations, and
  • Sole Proprietors

Other applicants were rendered ineligible due to various business conditions, employee statuses, and financial circumstances. For instance, bankrupt individuals and businesses did not qualify, nor did businesses that hired household employees.

If you were a landlord whose tenants struggled to pay rent, you may have been fortunate enough to qualify. If you did and now want to take advantage of loan forgiveness, you need to be aware of certain criteria.

How the Small Business Administration (SBA) Handles PPP Forgiveness

First and foremost, the SBA looks at the type of loan that the borrower took out. In some cases, borrowers took both first-draw and second-draw loans. Depending on the loans you took, the eligibility for full forgiveness changes. All real estate investors must understand how their loan status and use affects their forgiveness application.

What are First-Draw PPP Loans?

The "first draw" loans were the first loans issued to recipients. Those who received these loans had to be active in business before February 15, 2020, or seasonally operated between February 15, 2019, and February 15, 2020. These qualifying businesses also had to have under 500 employees.

A first-draw PPP loan for rental property paid out as much as 2.5 times an owner's monthly payroll amount. However, regardless of the payroll amount, this loan value could not exceed $10 million.

What is a Second-Draw PPP Loan?

In certain cases, small businesses could receive a second round of loans. These loans were more stringent and did not pay out as much. If their initial funds ran out, businesses eligible for these loans had to demonstrate a quarterly reduction in revenue of at least 25% and a workforce under 300 employees.

 Unlike the first-round loans, second-draw loans could not pay out any more than $2 million. Some businesses such as those in food service could get loans as high as 3.5x the monthly payroll, provided of course that the loans did not pay over $2 million.

When to Apply for Forgiveness of Loans

Once all your loan proceeds are used, you can apply. You can apply at any time until the maturity date of your loan. The loan maturity rate is typically two years, at one percent interest, with SBA- approved loans coming after June 5th having a five-year maturity rate.

Under the CARES Act, you have 10 months from the final coverage date to apply for forgiveness. Failure to do so results in termination of deferral and the requirement of repayment.

Applying for PPP Loan Forgiveness through the SBA

There are four main steps when applying through the SBA for the forgiveness of your loan(s). Firstly, you have to determine if your lender uses the SBA online portal. If they do not, you have to apply directly through them, usually using forms such as Form 3508, Form 3508EZ, or Form 3508S.

Secondly, you have to put your documentation together. The SBA will often request additional business documentation and information to corroborate standard forms. You will need to give documentation for all payroll periods overlapping with the Covered Period.

These payroll forms and documents include tax documents, bank statements, account statements, receipts, wage filing, and more.

For the following non-payroll expenses incurred during the Covered Period, you can provide the associated documentation:

  • Mortgage interest payments
    Account statements of lenders, receipts for mortgage payments, and amortization schedules are all acceptable.
  • Utility Expenses
    Invoices, account statements, receipts, and canceled checks are all acceptable.
  • Payments for Rent or Lease
    Current lease agreements, canceled checks, and receipts are all acceptable.
  • Operational Expenditures
    Invoices, receipts, canceled checks, account statements, and purchase orders are all acceptable.
  • Property Damages Covered
    Invoices, receipts, canceled checks, account statements, and purchase orders are all acceptable.
  • Supplier Costs
    Contracts, purchase orders, canceled checks, account statements, invoices, and receipts are all acceptable.
  • Worker Protection Expenditures
    Invoices, purchase orders, canceled checks, receipts, and account statements are all acceptable.

In all cases, copies will suffice. Ensure they pertain to the appropriate business period before submitting the forgiveness form and documentation. Contact your lender about any additional documentation required if that lender is not participating through the SBA online portal.

Finally, ensure you follow the progress of your application. You can appeal all loan review decisions. Follow up with your lender or the SBA about any issues, questions, or concerns. You should be notified of the first date you are to be repaid if approved for forgiveness.

If, as a real estate owner, you were unable to get a PPP loan for rental property, other rental assistance programs exist.

State and Federal Economic/Rental Relief Programs

Although there is no PPP loan for rental property owners in 2023, there are various programs that help with rental relief, economic injury, and disruptions to cash flow. The Economic Injury Disaster Loan (EIDL) program distributes a low-interest, recession-period EIDL loan.

 Landlords can receive up to $2 million in loans from the Economic Injury Disaster Loan (EIDL) program.

Now concluded, the Economic Injury Disaster Loan (EIDL) Advance program provided up to $10,000 in grants for qualifying small business owners and entrepreneurs. The current EIDL target advance program continues to help similar applicants.

There is also the Federal Rent Relief program, which is the newest of the federal rental relief programs. This rental assistance program targets landlords and tenants. Tenants who have trouble paying rent can apply, as can their landlords.

State governments can distribute these funds directly. To qualify for rental assistance, a tenant must fall within or below the Area Median Income.

Key Takeaway

If you're a rental owner, you owe it to yourself to maximize loan forgiveness and all financial opportunities available. Especially if you were hit hard by the global pandemic! 

Learn from the best. Dr. Rachel Gainsbrugh has become a household name in luxury short-term rentals. After taking her top-notch and reputable course, you can too!