In this 7-minute read:
- Can service providers in the auto-related industries get the PPP loan?
- 2021 PPP updates that increase automobile services providers’ chances for more funding
- Calculating your max loan amount
- Spending your PPP funds to receive loan forgiveness
- Applying for loan forgiveness
Are you a service provider in the automotive-related industries? If you own your own business, are an independent contractor, sell cars, or do detailing on the side as a gig job, you may qualify for stimulus funding for your business through the Paycheck Protection Program.
The PPP loan was set up to help businesses during the coronavirus pandemic. With due to statewide closures and people taking extra cautions to help limit the spread of the disease, many types of businesses across the country have taken a severe financial hit. And if your auto-related business has struggled to keep its doors open or otherwise seen the impacts of the pandemic, the PPP loan could help get the federal funding you need to stay strong.
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Can auto services, sales, detailing businesses and contractors get PPP loans?
The Paycheck Protection Program is intended to provide financial support for business owners, sole proprietors, independent contractors, gig workers, and self-employed individuals (in addition to other types of organizations like partnerships, non-profits, S and C corps, etc.) feeling the crunch of the COVID-19 pandemic. The bottom line is to qualify for PPP funding it isn’t as much about what kind of business you operate or what service you provide as it is about your employment status. Whatever your job is in the auto industry—mechanic, dealer, detailer, etc.—you can get the PPP loan so long as you meet all of the eligibility requirements.
The first requirement is your employment status. As noted above, to qualify for PPP loans generally, you must be a business owner, independent contractor, sole proprietor, gig worker, or otherwise eligible self-employed person and have the tax documentation to back it up.
If you are a W2 worker for an auto services business (if you’re employed by a detailing business, car dealership, auto services shop, tire shop, etc.), you wouldn’t be able to get the PPP loan for your W2 job. But, if you have other independent contract work or a side business, you may be able to get the PPP loan for that, depending on a couple other factors. Let’s go into those below.
Additional eligibility requirements
Beyond having the right employment/ownership status, you must meet certain eligibility requirements depending on if you are applying for your first or second PPP loan.
For first-time borrowers, you must have been in business as of February 15, 2020 and you must earn a minimum of $4800 in a year.
For those applying for their second PPP loan, you must meet these additional requirements:
- You have already spent your first PPP loan on authorized expenses before your second loan’s disbursement comes through
- You must be able to demonstrate that your revenue was reduced by at least 25% when comparing any quarter in 2020 to 2019
- You must have fewer than 300 employees
Note: this is not a comprehensive list of eligibility requirements. For more information about eligibility and special circumstances that may apply, or to learn more, check out our FAQ.
2021 PPP updates that increase many auto services businesses and contractors chances for more funding
Several changes have been made during the second round of PPP funding, and the changes made in 2021 could allow you to qualify (where you might not have before) and even apply for a larger loan.
- 1040 Schedule C borrowers (most business owners, contractors, sole props, and self-employed individuals) may now elect to use their gross profits (instead of net) to calculate their maximum loan amount. This could help many borrowers meet the minimum annual earning requirement and qualify. If you would have qualified before, you may now be eligible for more PPP funding
- Borrowers who are delinquent on their student loan payments can apply for the PPP loan
- Borrowers who are not citizens may now apply if they are lawful residents with an ITIN
Learn more about these 2021 updates to the PPP loan.
Calculating your max PPP loan amount
In order to determine how much of a loan your auto services business can apply for, you must use the following calculation. This calculation is generally accurate for self-employed individuals and businesses without employees:
- Get your 2019 or 2020 IRS 1040 Schedule C (you can choose which year to use), and find line 7 for your gross profits. Use that number for the rest of the calculation unless it exceeds $100,000. If it does, then lower that number to $100,000.
- Take your number from step 1 and divide it by 12.
- Multiply your number from step 2 by 2.5 to get your maximum loan amount.
- Bonus: If you received the Economic Injury Disaster Loan, you may add any outstanding amount of the loan made between January 31, 2020 and April 3, 2020 to your maximum loan amount.
Does your auto services business have employees? Then our FAQ can walk you through the calculation for your max loan amount.
You might also like: What documentation do you need for a PPP loan?
Spending your PPP funds correctly to receive loan forgiveness
The PPP loan is awesome because it can be completely forgiven, meaning you don’t have to pay anything back if you follow the rules and apply for forgiveness on time. In order to receive that forgiveness, you just need to spend your PPP loan on the expenses authorized by the SBA. We’ve outlined these for the auto services industry to make things a little easier.
Payroll/income
The biggest thing to keep in mind when spending your PPP loan is that at least 60% of it must go towards payroll costs. If you are self-employed without employees, then that can be used to pay your own income. In fact, you could put the entire loan towards your own income.
But if you do have employees, you’ll need to use this portion of the loan to keep them on your payroll and maintain their current compensation levels.
Additional approved business expenses
Beyond payroll, you can use the other (up to) 40% of your loan to help pay for other authorized business expenditures.
- Mortgage, rent, and utilities: any payments towards these expenses as they are related to your business. This might be payments for the garage or store you work out of
- Interest payments on debts: any interest payments on debts related to your auto business—credit cards, business loans, vehicle loans, equipment financing, etc.
- Operational expenditures: any payments for business software or cloud computing services that help facilitate essential functions of your business—payment processing, inventory tracking, invoicing, credit reporting software, accounting, and more
- Suppliers: any costs for supplier contracts or purchase orders that were in place before the start of your covered loan period
- COVID-19 costs: any costs associated with adhering to public health guidelines for COVID-19 protection—PPE, sneeze guards, lobby expansions, etc.
- Property damages: any property damage costs caused by the 2020 riots that weren’t covered by insurance
Keep good records of everything that you spend your PPP loans on so that you can best prepare to receive loan forgiveness. That might include receipts, bank statements, invoices, or cancelled checks.
Check this out: Tracking PPP expenses to maintain forgiveness (tools and tips!)
Applying for PPP loan forgiveness
When all is said and done and your PPP loans have been spent, you can apply for loan forgiveness. You’ll have 10 months from the last day of your covered period to apply. Otherwise you’ll be subject to the repayment terms of your PPP loan (which are still pretty dang good).
To apply for loan forgiveness, you should first check if your lender has opted-in to the new SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.
If the above doesn’t apply to you, contact your PPP lender and complete the correct application form.
The forgiveness application process is pretty simple. You’ll just want to stay in good communication with your SBA-approved PPP lender. When you are ready to apply, gather any verifying documents you might need (for expenses) and ask them to help you complete the correct application. They will then submit your forgiveness application to the SBA.
Once the SBA has made a decision, your lender will notify you. And if your loan is forgiven, you never have to worry about paying that back.
Learn more: Do I have to pay back my PPP loan?
Go deeper: see all the new 2021 PPP application and forgiveness forms here.
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