By Digital Dealer

Small Businesses are eligible for SBA loans for two months of payroll, and repayment will be forgiven if the rules are followed.

The $2 trillion Phase 3 Stimulus package couldn’t come soon enough for many small businesses affected by the coronavirus economic shutdown. Referring to multiple news sources, here is the information Digital Dealer has gleaned from the law that applies to franchise dealerships. Of course, small business owners should consult their own financial advisors and tax consultants on the law. This bill is extremely beneficial for dealerships of all sizes and includes provisions to help provide liquidity for dealerships and keep employees on payroll.

What’s in the Stimulus Package for Small Businesses?

The legislation sets aside hundreds of billions of dollars in available funds specifically for small businesses to obtain loans from the federal government. The program has $350 billion in loans that will be specifically administered by the Small Business Administration (SBA). This $350 billion “Paycheck Protection Program” is separate from the $50 billion in SBA loans that was put into law several weeks ago as part of the Phase 2 Stimulus package. Moreover, there is another $454 billion that will be administered by new lending agency managed by Treasury Secretary Stephen Mnuchin.

Who Qualifies and How Do You Get a Loan?

Any small business with fewer than 500 employees and operational on Feb 15, 2020, is eligible for a loan. To obtain a loan, qualifying small businesses are asked to simply go to their local FDIC-insured bank. Borrowers will be required to make a good-faith certification that the loan is necessary due to economic conditions caused by COVID-19 and that it will use the funds to retain workers and maintain payroll, lease and utility payments. In an effort to eliminate red tape, there is no hefty government website application. The loans are not like SBA loans in the past that were linked to natural disasters. Businesses that are facing the prospect of bankruptcy from the coronavirus outbreak will have a separate program in which they can participate.

How Much of a Loan Can You Get?

Small businesses can obtain a loan that covers two months of payroll. The maximum amount will be 250% of an employer’s average monthly payroll (based on a 12-month look back from the date of the loan), but NOT MORE than $10 million. Portions of the loans can also be used for debt obligations, mortgage or rent payments, utility payments, and payroll support. The loans themselves must be secured for a term of no longer than 5 years. Businesses will be eligible for the loans through December 31, 2020.

Percentage of employee retention related to amount of loan forgiveness

The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year, and by the reduction in pay of any employee in excess of 25% of the employee’s prior-year compensation. However, to encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire previously laid-off workers by June 30, 2020, will still qualify and not be penalized for having a reduced payroll during the loan period.

Tax Provisions Applicable to All Businesses

The CARES Act contains many dealer-friendly tax provisions that will assist dealers in maintaining liquidity during the disruptions caused by the ongoing coronavirus outbreak.

Net operating loss (NOL) carryback

Dealers will be permitted to offset losses in 2018, 2019 and 2020 against profits from the prior five years. NOL carryback was previously eliminated by the Tax Cuts and Jobs Act (TCJA) in 2017. This provision may provide dealers with losses in 2020 with substantial refunds. Losses that are used to offset pre-TCJA profits, which were taxed at a higher rate, will be refunded at pre-TCJA tax rates, providing an additional boost.

Modification on losses for taxpayers other than corporations 

The TCJA generally limited the amount of losses noncorporate taxpayers, including pass throughs, could claim to $500,000. Under the bill this limitation is suspended, allowing dealers to utilize excess business losses along with the new NOL carryback provisions to access critical cashflow.

There are more provisions in the Stimulus packages and CARES Act that pertain to dealerships. Digital Dealer recommends that you bookmark the NADA Corona Virus Hub, which is updated frequently with information relevant to the auto industry and dealerships.