COVID-19 Update: How Dealers Can Benefit from the Paycheck Protection Program

By Desiree Homer

Part 1: FAQ & Unraveling the Guidelines

Some dealers have already attempted to navigate the application process for the Paycheck Protection Program relief funds. If you haven’t taken that step for your business, or still have questions, NADA has some great resources to help you get started. Understanding how the CARES Act can be leveraged for financial relief will be different for each dealer, depending on the size and nuances of your operations. In this part one of two Daily Drive segments, here are some important places to start in unraveling the guidelines and processes of the PPP for dealership enterprises.

An Introduction to the Program

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, the Paycheck Protection Program (PPP) is an SBA classified 7(a) loan. Funded initially with $349 billion of the entire $2 trillion budget, these PPP loans are designed to help businesses continue to fund store operations and pay employees. Traditional SBA Affiliation Rules for qualifying businesses have been amended under this program, making the PPP loans available to a broader range of business sizes and operations. Since the introduction of this program within the last week, thousands of applications have been submitted. The flurry of activity has prompted the White House to act and request an additional $200-$250 billion to the program. President Trump announced in a recent briefing that he plans to ask Congress for supplemental funding yet this week.

Who It’s Intended to Help

Dealerships with 500 or fewer employees, based on payroll taxes and salaries paid prior to February 15, 2020, can take advantage of the PPP relief loans. Borrowers can secure funding for up to 2.5 times the average payroll costs, or up to $10 million. These funds should be used to help pay existing and furloughed employees, for employee benefits, as well as operational expenses, including mortgages and utilities. Those dealer groups that manage multiple franchises, each franchisee that is registered as a separate legal entity is potentially eligible to apply, as long as they fall below the 500-employee threshold.

The Fine Print for Dealerships

There are a few critical points to note regarding the PPP relief funds. Dealers who are granted loans under this platform may not be able to also defer payment on their payroll taxes. PPP loan recipients may also not be allowed to use the retention tax credit outlined in the CARES Act, in addition to the PPP loan. To know what relief options work best for your dealership, consider consulting your financial advisers to weigh the benefits of the tax provisions versus the cash flow. If the PPP loans are ideal for your operations, the maturity date for the loans is two years, and the interest rate is one percent or 100 base points.

There are plenty of COVID-19 relief resources out there for businesses looking for information about the nature of the PPP loans and processes. Some of the best places to start for dealer owners and managers are available via the NADA webinars and FAQ sheets. These relief funds are unfortunately only available on a first-come, first-serve basis. Meaning dealers should be quick to make their decisions and submit their applications. Tomorrow we’ll share Part 2 of this topic exploration, as we’ll outline all the necessary next steps to move forward.