Small Business Funding not Enough to Stem Bleeding

Hoteliers/Lodging industry shed 4 million jobs, lose $500 million a day. Dr. Cecil Staton warns America that the CARES Act is not helping the unique needs of the lodging industry, the vast majority of whom are small business owners.

By Dr. Cecil Staton

America’s hotels are hemorrhaging $500 million a day from the economic shutdown, requiring as much as six months’ worth of relief to stay open. To date, more than 4 million jobs have been lost. As a result, the current Paycheck Protection Program and its sister programs are dramatically inadequate to stem the bleeding.

As U.S. Treasury Secretary Steve Mnuchin said, every dollar spent through this program is a dollar that does not have to be spent through unemployment. Yet Congress, battling along partisan lines, settled on relief that shorts the vital lodging industry that will ensure America gets back on its feet — if open.

The lodging industry, represented by our association and others, has nevertheless stepped up to assist Americans during the pandemic — and continues to do so. More than 15,000 hoteliers have offered free rooms for first responders to stay to keep their families safe from exposure, as well as free rooms for college students and the homeless.

America’s hotel owners are small business owners. The overwhelming majority of hotels are owned and operated by people who live in local communities. In these difficult times, lodging is the signal industry. Hotels were the first to fall when conferences and events cancelled, and it will be the last to return to pre COVID-19 levels, as the trajectory of the virus and a potential resurgence remains uncertain, job losses have impacted disposable incomes, and businesses have seen profits fall and are cutting costs everywhere — especially discretionary travel.

Nobody can prepare to go to occupancy rates in the single digits. Even after the 2008 financial crisis, occupancy rates never fell much below 50 percent. Today, they are in single digits. Hoteliers are worried about meeting their payroll and paying their mortgage because people simply cannot travel and there is no income to make these critical payments.

The American economy will recover more quickly if Congress appropriates funds to prop up small businesses during the crisis rather than allowing them to collapse. The overriding concern is that American communities are going to be littered with the carcasses of small businesses like franchise hotels that have failed.

For a business like a hotel, the formula to determine its maximum PPP loan (2.5 times its annual average monthly payroll) just is not sufficient to make payroll, as well as keep the doors open for the business, let alone pay suppliers and service providers, representing millions of employees.

We also urge Congress to extend the covered period from June 30, to the end of 2020. Lodging business is seasonal and most hoteliers earn enough from April to September to keep their businesses running through the rest of the year. Since there is no business due to travel bans brought on by the health crisis, hoteliers simply cannot afford to remain open. The final tab may be $1 trillion to enable hotels to stay open until travel is back to normal.

These loans should also reasonably cover both payroll and non-payroll expenses. That’s why the current formula to determine a business’s maximum PPP loan is inadequate. The maximum loan available through PPP should be eight times the average monthly cost of all expenses up to $10 million (which represents eight months between from May 1 through the end of 2020). This will ensure that small businesses have sufficient liquidity to continue keeping employees on payroll while maintaining their operating expenses. When the economy comes roaring back to the life, hotels will be essential to facilitate American commerce.

Small business owners know what their businesses need to survive. That’s why it is so important for us to let Washington know what our economy needs. It’s said that government should not be in the business of picking winners and losers. Unless the PPP is adjusted to reflect the realities of running small businesses like hotels, the losers will outstrip the winners as the effects of the pandemic reverberate for months through the American economy.

Dr. Cecil Staton is President & CEO of Asian-American Hotel Owners Association, the world’s largest hotel owners association. AAHOA members own about one in two hotels in the United States. He also was a guest on the I Spy Radio Show on May 9th, 2020: “Flynn Goes Free. Plus Worrisome News on America’s Reopening“.