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Maximize Your Chances of Paycheck Protection Program Loan Forgiveness

Apr 16, 2020

The Paycheck Protection Program (PPP), offered through the Small Business Administration (SBA), gives business owners, including dealerships, an opportunity to improve their liquidity during the COVID-19 crisis and widespread economic shutdown.

The PPP is designed to help employers continue paying their employees, whether or not their business remainss open or their employees are working. And the best part- the loan may never need to be paid back. But there are important steps that recipients must take to maximize their chances of loan forgiveness. Loan recipients must:

  • Spend at least 75% of the loan amount on payroll, which can include the cost of health benefits, but not be more than $100,000 in total compensation for any individual employee. Loan amounts are calculated based on a business’ past payroll and are meant to be used to pay employees.
  • Maintain the same number of employees or restore employment to the same level it was prior to February 15. If employees have already been laid off or furloughed, employers have until June 30 to rehire them. A business does not have to rehire the same employee, but the business must have the same number of employees it had prior to February 15.
  • Pay salaries and/or wages that are at least 75% of what employees were making prior to the crisis.
  • Use the loan to pay approved expenses outside of payroll, including utilities, rent and/or interest on the mortgage for the place of business.

Keep in mind, if a dealership rehires 8 of 10 employees that have been previously laid off or furloughed, ahead of the June 30 deadline, only a PORTION of the loan may be forgiven. Also, please know that any unforgiven balance of a PPP loan, must be paid back within two years.

Other Information Regarding the Paycheck Protection Program (PPP)

NADA has posted a document entitled PPP Loans: Use of Proceeds and Forgiveness NADA Preliminary Guidance that provides valuable insights into important issues involving the forgiveness elements of the PPP loan program. To the extent that a PPP loan is forgiven, it effectively becomes a grant from the federal government to the borrower. Please note that, this information is preliminary and does not reflect the further guidance expected from SBA/Treasury.

SBA also released the following statement:

In the near future, SBA expects the amount of processed PPP loan volume to reach the maximum amount authorized and appropriated by Congress. Once the authorization limit is reached, SBA will not be able to accept any new loan applications for the Paycheck Protection Program. This will mean that lenders will no longer be able to load PPP applications into the Capital Access Financial System (CAFS or E-Tran) [the Lender Gateway]. SBA is unable to maintain a queue for PPP applications. Further, PPP loan amounts may not be adjusted by lenders within the CAFS system. Additionally, once the authorization limit is reached, SBA will no longer be able to accept new lender applications to become PPP lenders. SBA is reaching out to the lending community to make them aware of this eventuality so that they may prepare and inform their small business customers of the situation. SBA will continue to inform its lending partners of new updates should Congress authorize additional funds.

NADA has signed on to a letter to Congress and is pushing hard for additional PPP funding. Additional funding is important for dealers who have yet to apply for a PPP loan or have applied for one but have yet to be approved and funded.

For additional information on the PPP and CARES Act issues, please see the updated version of NADA’s FAQ and Treasury’s PPP Loan webpage.


Economic Injury Disaster Loan (EIDL) Also Available

Businesses may also want to consider applying for an Economic Injury Disaster Loan (EIDL). Keep in mind, businesses can apply and be approved for loans under both programs at the same time, but they cannot be used to cover the same costs.

An EIDL loan CAN be used for payroll, but if a business primarily needs money for working capital and supplies, the EIDL may be better choice. A huge benefit of the EIDL is that the loan payback is a 30-year term, with no penalty for paying the loan off early.

It is critical that loan recipients keep good records in order to prove to their lender what percentage of the money was spent on forgivable expenses. While both the PPP and EIDL are government loan, SBA-approved lenders will be evaluating applications for loan forgiveness.

As always, NJ CAR encourages dealers to speak with their personal attorney or accountant to determine whether a PPP loan, an EIDL loan or both would best serve their needs.