A number of large corporations and organizations — including Shake Shack and the Los Angeles Lakers, which both returned their loans — have come under fire for receiving cash from the Paycheck Protection Program. But new-vehicle dealerships mostly are eligible borrowers under the program.

 

"Each dealer has to perform his own good faith analysis based on the facts and circumstances relevant to his business at the time he applies," said Dennis O’Keefe, the CATA’s general counsel. "Unfortunately, the new May 7 deadline for ineligible borrowers to repay PPP funds suggests that the Interim Final Rule might have somehow modified the analysis in place when the loan application was filed."

 

Andrew Koblenz, the NADA’s executive vice president of legal and regulatory affairs, said that the fact that the CARES Act specifically replaced the traditional "no credit elsewhere" Small Business Administration loan test in favor of a "current economic uncertainty makes the loan request necessary to support the ongoing operations" test.

 

O’Keefe said: "So while the SBA and the Treasury Department might be backpedaling somewhat with their Interim Final Rule and FAQ, the FAQ specifically refers to ‘business owned by large companies’ who have adequate sources of liquidity, and goes on to provide an example of ‘public companies.’

 

"The majority of dealerships are neither businesses owned by large companies nor public companies, which would suggest that, for those dealerships, neither the FAQ nor the Interim Final Rule would modify the test originally set out in the CARES Act."

 

However,  O’Keefe further notes that Treasury Secretary Steve Mnuchin appeared to move the goalposts again with his April 28 comments that the government would undertake a "full review" of all loans that exceed $2 million. Part of this warning is likely meant to encourage large companies to return the funds (it apparently worked with Potbelly, Auto Nation, and Harvard, to name just a few); but these comments also further distance Treasury from the original intent of the PPP program, which was to quickly and without red tape get cash into the hands of as many small businesses as possible.

 

"Hard to tell day today if the goalposts are in their final position," O’Keefe said. "The bottom line is that each dealer needs to consult with his own financial and legal advisors as to how to proceed."