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Payroll protection: Auto dealers and the Paycheck Protection Program

Apr 28, 2020

In response to the COVID-19 crisis, the Small Business Administration (SBA) is offering small businesses relief in the form of the Paycheck Protection Program. Although the PPP ran out of its initial $349 billion funding, Congress recently approved $310 billion more for the program. If you missed out on the first offering, you can now start applying again.

Despite its narrow title, the Paycheck Protection Program offers help with some expenses beyond making payroll, although that is its primary purpose. Here are answers to some common questions auto dealers have.

Q: Are all auto dealerships eligible to apply?

A: The program is for businesses with 500 or fewer employees. If you belong to a dealership group with a staff larger than that (employees only — contractors don’t count), the group cannot apply unless it obtains a waiver. But individual dealers in the group can apply without a waiver, as long as they don’t exceed the employment maximum.

Important: Dealers who meet the employment criteria must also have a Franchise Identifier Code (FIC) issued from the auto manufacturer they work with. Here is a list of FIC codes as of April 3, 2020. The list may change, so be sure to check the SBA site for updates before submitting your application.

Q: How much can you borrow?

A: Up to $10 million or 2.5 times your average monthly payroll costs for the 12 months prior to the date of the loan, whichever is less. For the PPP, you can count payroll expenses only for employees earning up to $100,000 a year.

Q: What if you haven’t been in business for 12 months?

A: You can still apply. Use January and February 2020 payroll data to calculate your payroll costs for 12 months.

Q: Does this program help with floor plan financing costs?

A: The SBA has not addressed this question specifically. What it does say is that PPP loans may be used for mortgage interest payments (but not for mortgage prepayments or principal payments) and for “interest payments on any other debt obligations that were incurred before February 15, 2020.”

The floor plan financing question is fraught because interest credits often are used as a purchase discount for dealers, making it hard for the SBA to determine how much of the interest obligation is a real expense. Further SBA guidance on this point is needed. Discuss it with your lender when you apply.

Q: I heard these loans are forgivable. Is that true, and if so, what does it mean?

A: Some or all of the loan amount may be forgiven if certain conditions are met. The amount of loan forgiveness will depend on your costs, the SBA says. It has promised further guidance, and has said the following restrictions will apply to loan forgiveness:

  1. No more than 25% of the loan forgiveness amount can be applied to nonpayroll costs, and
  2. You must demonstrate that the loan money was spent on qualified expenses.

Qualified expenses include:

  • Payroll costs (for employees making $100,000 a year or less)
  • Group health benefit costs (insurance premiums and paid sick leave, medical leave or family leave expenses not covered by the Families First Coronavirus Response Act)
  • Utility payments
  • Mortgage interest and debt interest payments incurred before February 15, 2020 (Floor plan interest has not been addressed specifically; see above)
  • Refinancing costs of an SBA Economic Injury Disaster Loan (EIDL) loan made between January 31, 2020 and April 3, 2020

Q: What happens if you use the loan for expenses that turn out not to be qualified?

A: You will have to repay, with 1% interest, loan proceeds that are spent on nonqualified expenses. If the SBA believes you knowingly used the loan for unauthorized purposes, you could be charged with fraud.

Q: How do you apply for a PPP loan?

A: Fill out an online loan application form and take it to a lender. You can work with any of the 1,800 participating SBA-approved lenders or any participating federally insured bank or credit union. Additional lenders are seeking approval. Start by talking with your local lender.

Q: What if you already applied for an SBA EIDL loan?

A: You can apply for a PPP loan as well.

Q: What’s the deadline for the PPP application?

A: June 30, but the sooner you apply, the better. As we saw before the initial round of funding ran out, loans will be funded on a first-come, first-served basis, and the PPP’s second round of funding will likely again run out quickly.

Because of the program’s unprecedented scope, the SBA has been inundated with applications. In addition, banks have many unanswered questions, and the online application system sometimes crashes. But be patient and don’t give up. You — and your employees — have much to gain, and nothing to lose, by applying.

Contact Wipfli for help with your application. You can also visit our COVID-19 resource center for more resources to help your business navigate the impact of the coronavirus pandemic.


Steve Hewitt, CPA
Dealerships Practice Leader
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Kevin Cherney, CPA
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Mark W. Ayers, CPA
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