Real estate investors, more specifically, can take advantage of the Paycheck Protection Program (PPP) for their small businesses. This part of the CARES Act provides an eligible Small Business Administration (SBA) loan with a maximum interest rate of 4% and a maximum term of 10 years. Depending on your employment situation, you may be able to apply for a PPP loan as a real estate agent or real estate agent. Most real estate agents are classified as independent contractors and receive a 1099-Misc for taxes, and often file IRS Form 1040 Schedule C.
If you fall into that category, you are absolutely eligible for this program. The Interim Final Rule issued late last week by the SBA limits the availability of PPP loans to companies engaged in certain activities. Among them are passive owners and developers. An eligible applicant can apply for PPP loans directly from loan services approved by the Small Business Administration or from an eligible private lender.
It's important to note that some private lenders may only consider PPP applications from companies that already have a deposit account with them. As real estate owners face many challenges, they should also focus on how to maximize PPP loan forgiveness and consider how the PPP loan can influence strategies for dealing with other property debts, your primary mortgage loan, and other financing. These rules, which were not included in the enabling law, seem to exclude real estate companies primarily engaged in owning or buying real estate and leasing real estate from eligibility. Real estate companies are asking good questions about the SBA PPP loan program, particularly about borrower certifications.
PPP loans may be more beneficial to the owner-operator of a hotel with many properties and a large number of direct employees, but not for a real estate business with a multi-million dollar portfolio managed by a total workforce of fewer than 15 direct workers. Real estate owners who took advantage of these loans should be aware of the evolving set of administrative and compliance rules around reporting and requesting forgiveness to maximize forgiveness. Soon, all PPP borrowers, including real estate companies, will need to focus their attention on preparing for what could be a tedious and detailed process of applying for loan forgiveness. Many real estate companies applied for and received loans from the Small Business Association (“SBA”) Paycheck Protection Program (“PPP”).
If there is no white knight and distress ultimately requires a bankruptcy filing by the property owner, in the normal course and in most cases, the PPP loan is unsecured and the PPP lender becomes an unsecured creditor of the estate. However, some real estate investors have been particularly affected, as rental moratoriums have been in place for more than a year. There are few instances where real estate agents are classified by your broker as an employee, rather than an independent contractor, in which case you wouldn't qualify for the PPP loan, but your employer should definitely apply for it.
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