President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) to address the small business concerns in the Paycheck Protection Program (PPP). The modifications to the PPP are important to dealers who have applied for and received PPP loans and intend to have their loan proceeds forgiven. 

NADA’s forgiveness analysis lists the PPPFA’s modifications and reviews important issues involving PPP loan proceeds use and forgiveness in light of (1) those modifications and (2) the guidance and forgiveness application materials issued to date by the Small Business Administration and the Treasury Department. Before applying for forgiveness, dealers with PPP loans should contact their legal and accounting experts on how these new modifications will apply. Dealers should also contact their lenders with specific questions. 

Also see NADA’s CARES Act FAQs, which have been updated to include provisions in the new law.

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Don’t miss important webinar:

On Tuesday, June 9, at 1pm EST, NADA will hold an important Dealership Lifeline webinar on the impact this new law will have on the use and forgiveness of loan proceeds. NADA’s Andy Koblenz and Doug Greenhaus will review the PPP Flexibility Act and make reference to key rules and guidance from the SBA and Treasury with a special focus on loan forgiveness application materials. Time will be allotted to address questions from webinar participants. This webinar is designed for dealers, dealership managers, controllers, CPAs, and lawyers. Register here.

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The following summarizes the changes and clarifications enacted:

  • The period of time in which a loan recipient has to spend the PPP loan funds was extended from 8 weeks to 24 weeks;
  • The 25% cap that the Treasury Department placed on forgiveness of non-payroll expenditures has been changed to 40%, but an employer is now required to spend at least 60% of the total loan amount on payroll costs to be eligible for any forgiveness;
  • Employers now have until December 31, 2020, to rehire employees and avoid reduction in the potential forgiveness amount; and
  • Any unforgiven loan proceeds will have a minimum repayment term of 5 years.

In short, these changes mean that for most dealers that received PPP loans the full amount of the loan will be forgiven, even if the dealer faces a reduction in the potential forgiveness amount because of a reduction in employee count or salary/hourly wage.  Consider this example:

  • Dealer A had a monthly payroll expense of $200,000 in 2019.
  • The amount of Dealer A’s PPP loan was $500,000 ($200,000 x 2.5).
  • During the 24 weeks after receipt of the PPP loan, Dealer A employed only 60% as many employees as in 2019 or the 1st quarter of 2020 (but each remaining employee continued to earn an annual salary or hourly wage of at least 75% of what was earned in the 1st quarter of 2020), such that Dealer A’s monthly payroll expense was $120,000.
  • For the 24 weeks after receipt of the PPP loan Dealer A’s payroll expense was approximately $660,000.
  • For the 24 weeks after receipt of the PPP loan Dealer A paid $35,000 a month in other eligible expenses (utilities, rent, and mortgage interest), for a total of approximately $192,500.
  • Dealer A’s total potential forgiveness is $852,500 ($660,000 + $192,500).
  • Even when the potential forgiveness of $852,500 is reduced because of the 40% reduction in employee count, the forgivable amount is $511,500 ($852,500 x .60), more than the original loan amount of $500,000.
  • Dealer A will receive complete forgiveness of the full amount of its $500,000 PPP loan.