Important Guidance for Real Estate-Related PPP Loan Forgiveness

Late last month, the Small Business Administration issued updated guidance that allows for Paycheck Protection Program funds spent on rent and mortgage interest paid to third parties to be forgiven, with some caveats.

According to the legislative affairs team at NADA, the guidance “clarifies that rent paid to a real estate entity owned by a borrower is forgivable only to the extent that the real estate entity makes mortgage interest or lease payments to a third party.”

NADA also acknowledges that, “for franchised dealership PPP borrowers most, if not all, of their forgivable expenses will consist of payroll and payroll-related items versus nonpayroll expenses such as rent or mortgage interest.” That said, this guidance could still be of use to many dealers who needed to use PPP funds to make rent or mortgage payments to a third-party lender, while still fulfilling the other forgiveness requirements of the program.

Please review NADA’s excellent guides to the program, PPP Loans: Use of Proceeds and Forgiveness, and their CARES Act FAQs page, for more information on this latest SBA rule and all others related to the PPP. Please be sure to consult your accountant and your SBA 7(a) Lender before you file any forgiveness application, particularly one that requests forgiveness for rent payments paid to a real-estate lender.

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