In this 8-minute read:
- Do VRBO and Airbnb owners qualify for the PPP loan?
- Passive income exclusions and EPC exceptions
- PPP rule changes that could benefit Schedule C applicants
- PPP loan eligibility requirements for vacation rental owners
- Maximum loan calculation for vacation rental owners
- How should eligible VRBO and Airbnb owners spend their PPP funds?
- Applying for PPP loan forgiveness
The Paycheck Protection Program was created to help ALL of America’s small businesses. That includes the less “traditional” businesses like vacation rental owners. If you rent out a second home, an apartment, a cabin, or even part of the home you currently live in through Airbnb, VRBO, or another way that brings you income, you may be qualified to receive a PPP loan.
PLEASE NOTE: There are some nuances here depending on how you structure your business and report income/file your taxes, so let’s go over some key points.
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Do VRBO and Airbnb owners qualify for the PPP loan? (It depends)
The elephant in the room as far as vacation rentals, VRBO, or Airbnb and PPP loans goes is whether you receive “passive income” or have set up your business as an Eligible Passive Company that manages an “operating company” according to the SBA’s EPC rules.
Usually, “passive companies” are not eligible for SBA loans, but according to Janet Berry-Johnson, a CPA writing for Bench’s blog, there is an exception for “Eligible Passive Companies”:
“However, the SBA has very narrow guidelines for which EPCs qualify for loans and how they may use loan proceeds.
Here are the conditions for qualifying as an Eligible Passive Company:
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- Lease to an operating company: The EPC must lease 100% of its real or personal property to an operating company (OC). The OC must also be an eligible small business.
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- Lease term: The lease must have a term equal to or greater than the term of the loan. For example, if there is only one year left on the tenant’s lease with no option to renew, the EPC won’t be able to get a loan with a two-year term.
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- Lease payments: The EPC can’t make a profit on the lease payments from the OC. In other words, the lease payments can’t be more than the loan payment plus a reasonable amount to cover the EPC’s costs of owning the property, such as maintenance, property taxes, and insurance.
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- OC as co-borrower or guarantor: The OC must be a co-borrower on the loan if it receives any loan proceeds. Otherwise, each person with at least a 20% ownership stake in either the EPC or the OC must guarantee the loan.
You can read more about EPC rules in pages 104-106 of the SBA’s SOP 50 10 5(F).”
However, Berry-Johnson points out that even if an EPC may technically qualify for a PPP loan, it may not be the best move:
“Should an Eligible Passive Company apply for the Paycheck Protection Program?
“Small businesses that apply for the Paycheck Protection Program (PPP) are supposed to use at least 60 percent of the loan proceeds to cover payroll and employee benefit costs. The remaining 40 percent can be used for covering mortgage interest payments, rent and lease payments, and utilities. As long as borrowers follow these guidelines, they can have 100% of the loan forgiven, essentially turning the loan into a tax-free grant.
“The issue with EPCs applying for the PPP is that most EPCs don’t have a lot of employees. Most holding companies just collect rent or other investment income, pay a small number of business expenses each month, and distribute profits to the owners. For that reason, EPCs with no employees may not be a good candidate for a Paycheck Protection Program loan.”
So, if you have set up your VRBO/Airbnb/vacation rental property business to provide passive income and/or you set it up as an EPC, a PPP loan may not be right for you, or even possible.
However, if you don’t receive passive income and have your business set up as a sole proprietor, independent contractor, self-employed individual that reports income on a Schedule C (form 1040), you may be eligible for PPP loans. Different states have differing regulations, so be sure to check your local laws, or ask your lender to be sure.
An additional issue you may need to address if you determine that you ARE eligible for PPP funding under the EPC rules or receive passive income is that some lenders may not accept or process your PPP applications, even though it might technically be allowed under SBA rules. Some lenders’ processes will not permit submission of PPP loans for individuals reporting passive income. Check with your lender to be sure.
Go deeper: Read more about rules for the PPP loan Schedule E filers need to be aware of.
PPP rule changes that could benefit eligible Schedule C applicants
In February 2021, the Biden-Harris administration announced some PPP rule updates that give more people the chance to apply for PPP loans. Borrowers who file their taxes using IRS Form 1040 Schedule C can now use their gross profits, rather than net profits, to determine their maximum loan amount.
For PPP eligible vacation rental/VRBO/Airbnb owners, that means that you can get even more from your PPP loan than before, if you report using Schedule C (form 1040). Previously, many individual borrowers using their net profits didn’t meet the qualifications for the PPP loan because they didn’t have an annual income of at least $4800, but this recent rule change using gross profits allows more Schedule C borrowers the chance to apply and receive these funds.
PPP loan eligibility requirements for eligible vacation rental, Airbnb, and VRBO businesses
Just reporting your income on a Schedule C form isn’t enough though. Assuming you meet the qualifications discussed above regarding passive income restrictions, there are some other requirements that you must meet in order to qualify for the PPP loan.
Currently, borrowers can apply for a first or second draw PPP loan. A first draw loan is one where the borrower hasn’t previously received a PPP loan, and the second draw loan is for those who have already received a PPP loan.
First draw loan eligibility:
- You must have been in business as of February 15, 2020
Second draw loan eligibility:
- You must have already received a PPP loan
- You must have spent your first PPP loan funds on approved expenses by the time your second draw funds are disbursed
- You must be able to demonstrate a revenue reduction of 25% or more when comparing any quarter in 2020 to 2019
- (You must have fewer than 300 employees)
For more information and special circumstances around eligibility for the PPP loan, check out our FAQs:
Maximum loan calculation for eligible vacation rental, VRBO, Airbnb businesses
If you’re a PPP eligible vacation rental, VRBO, or Airbnb business owner, it’s helpful to understand how the PPP loan amount is calculated before you apply so you have a realistic expectation of the funds that you’ll receive. Knowing this amount ahead of time can also help you plan how you’ll spend these funds.
You’ll use the following steps to calculate your PPP loan amount if you don’t have any employees:
Step 1: You’ll need to acquire either your 2019 or 2020 IRS Form Schedule C (you get to choose). Once you have that form, grab your gross profit amount from line 7 (you can also choose to use net profit, line 31, but gross profit generally gets you a larger loan). If this amount exceeds $100,000, reduce it to $100,000.
Step 2: Take your gross profit from Step 1 and divide it by 12 to get your average monthly income.
Step 3: Multiple your average monthly income by 2.5 to get your maximum loan amount.
Step 4 (Optional): If you had an Economic Injury Disaster Loan in 2020, you may be able to add more to your maximum loan amount. Take your final number from Step 3 and add any outstanding amount of your EDIL made between January 31, 2020 and April 3, 2020. Just don’t add any advance you received for the loan since that doesn’t have to be repaid.
If you do have employees for your vacation rental business, then your calculation will look a little different. Follow the steps in this FAQ to calculate your first draw max loan amount if you have employees.
How should eligible VRBO and Airbnb owners spend their PPP funds?
You need to spend your PPP loan funds on SBA-approved expenses in order to receive full loan forgiveness. Knowing what you want to spend your PPP loan funds on will help you better fill out your application and help you plan and track your expenses.
Income/payroll
At least 60% of the PPP loan that you receive must be spent on income or payroll if you wish to receive loan forgiveness. If you don’t have any employees, you can use 100% of the loan to pay your income.
If you do have employees that 60% (or more) of the loan will need to be used to help maintain your employees and their compensation levels.
The other 40% can be spent on the following expenses.
Mortgage, rent, utilities
Do you still have mortgage payments on your vacation rentals? You can use your PPP loans to help pay the mortgages on your properties and office space if you have it as well as utilities that relate to your business. If you have a home office that you manage your rentals from, you can still use your PPP loans to help with that too—just make sure you only use them on the portion that you would deduct from your business taxes.
Interest payments on business debts
If you have any business-related debts for your vacation rental business—credit cards, business loans, etc.—you can use your PPP loans to help pay the interest on those debts.
Operational expenditures
The SBA recognizes that it takes money to make money and has approved certain operational expenses for the PPP funds. If you use any business software or cloud computing services to help manage your rentals in sales or billing functions, invoicing capacities, payment processing, managing inventory, tracking expenses, or other functions necessary for the operation of your business, then your PPP funds can help cover those costs.
Supplier costs
Supplier costs are another approved expense for the PPP loan. Maybe you have a supplier for your linens, toiletries, or other necessary items for your rentals. As long as you’ve put in a purchase order or had a contract in place prior to the first day of your covered loan period, you can use your PPP loan to help with those costs.
COVID-19 expenses
Many businesses have incurred new costs for PPE, cleaning supplies, sneeze guards, and even business expansions to help stick to public health guidelines during the coronavirus pandemic. You can use your PPP loans to help pay for any costs related to this or other significant changes you’ve had to make to ensure a safer environment for yourself, your customers, and/or any employees.
Property damage
Many businesses, particularly in larger cities, dealt with property damages in 2020 from the public disturbances and riots that took place. If your business properties were damaged, you can use your PPP loans to help cover and costs that weren’t covered by insurance.
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Applying for PPP loan forgiveness
Once you’ve spent your PPP loan funds appropriately, you can apply to receive full loan forgiveness.
To apply for loan forgiveness, you should first check if your lender has opted-in to the new SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.
If the above doesn’t apply to you, contact your PPP lender and complete the correct application form, when you’re ready to apply for forgiveness (this must be done within 10 months of the last day of your covered loan period).
Be sure to gather any documentation that will help verify where you spent your PPP funds. This could be bank statements, invoices, cancelled checks, lease agreements, etc.
When you’ve gathered everything you need, turn it into your lender with your application. They’ll let you know if there’s anything else you should have and then process it with the SBA. When a decision has been made on your application, your lender will notify you.
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