Can I Use PPP to Buy a Car? A Comprehensive Guide to PPP Loan Usage

The Paycheck Protection Program (PPP) was a crucial lifeline for many businesses during the COVID-19 pandemic. However, with the program now closed, questions remain about how the funds can be used. One common question is whether PPP funds can be used to purchase a car.

Understanding PPP Loan Usage: A Primer

The PPP was designed to help businesses keep their employees on payroll during the pandemic. The program provided forgivable loans to eligible businesses, with the amount of the loan based on the business’s payroll expenses. To be eligible for forgiveness, businesses had to use at least 60% of the loan proceeds on payroll costs. The remaining 40% could be used for other eligible expenses, such as rent, utilities, and mortgage interest.

Can PPP Funds Be Used to Buy a Car?

The short answer is no. PPP funds cannot be used to purchase a car. The SBA has explicitly stated that PPP funds cannot be used for “personal use” expenses which includes the purchase of a car.

What Can PPP Funds Be Used For?

So, what can PPP funds be used for? Here is a list of eligible expenses:

Payroll costs: This includes salaries, wages, commissions, and benefits for employees.
Rent: This includes rent payments for business premises.
Utilities: This includes payments for utilities such as electricity, gas, water, and internet.
Mortgage interest: This includes payments on mortgage interest for business premises.
Covered operations expenditures: This includes expenses that are essential to the operations of the business, such as software subscriptions, cloud computing services, and accounting fees.
Covered property damage costs: This includes costs related to property damage caused by vandalism or looting during 2020.
Covered supplier costs: This includes payments to suppliers for essential goods and services.
Covered worker protection expenditures: This includes costs related to the implementation of safety measures to protect employees from COVID-19.

What Happens if I Use PPP Funds for an Ineligible Expense?

If you use PPP funds for an ineligible expense you will be required to repay the funds to the SBA. Additionally you may be subject to additional penalties, including fines and imprisonment.

While PPP funds cannot be used to purchase a car, there are a number of other eligible expenses that you can use the funds for If you are unsure whether an expense is eligible, it is best to consult with an accountant or financial advisor.

How can PPP loans be used / What are forgivable expenses?

The proceeds of a PPP loan are to be used for:

Payroll expenses (as specified in this interim final rule, the Economic Aid Act, and the CARES Act);
Expenses associated with maintaining group health care, life, disability, vision, or dental insurance as well as premiums for these plans during paid sick, medical, or family leave periods;
mortgage interest payments (but not mortgage prepayments or principal payments);
rent payments;
utility payments;
interest payments for any additional loans taken out prior to February 15, 2020;
repurchasing an SBA EIDL loan that was obtained between March 3, 2020, and January 31, 2020;
covered operations expenditures include payments for any cloud computing or business software that supports accounting, supply, inventory, records, and expense tracking, payroll processing, payment, and tracking, human resources, sales, and billing, as well as business operations, product or service delivery;
covered property damage costs (expenses for vandalism or looting resulting from public disturbances in 2020 that were not reimbursed by insurance or another source of funds);
Covered supplier costs are defined as payments made by a borrower to a supplier of goods for the provision of goods that are necessary for the borrower’s operations at the time of the expenditure and that are made in accordance with a contract, order, or purchase order that is in effect at any point before the covered period with regard to the applicable covered loan, or, in the case of perishable goods, in effect before or at any point during the covered period with respect to the applicable covered loan); and
operating or capital expenditures related to covered worker protection that help an entity adapt its operations to comply with regulations set forth by the Department of Health and Human Services, the Centers for Disease Control, the Occupational Safety and Health Administration, or any comparable regulations set forth by a State or local government, between March 1, 2020, and the date on which the national emergency pertaining to COVID-19 ends. This includes expenses related to the upkeep of sanitation standards, social distancing, or any other worker or customer safety requirement related to COVID-19. Examples of these expenditures include the acquisition, upkeep, or renovation of assets that the National Institute for Occupational Safety and Health has approved particulate filtering facepiece respirators, including those authorized only for emergency use authorization; or other types of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and such expenditures do not include residential real property or intangible property. 103(a) of title 44, Code of Federal Regulations, or any successor regulation.

At least 60 percent of the PPP loan proceeds shall be used for payroll costs. The amount of any EIDL refinanced will be included in calculating the percentage of proceeds used for payroll costs. However, in order to calculate the amount of loan forgiveness, the borrower will need to provide proof of the funds utilized for payroll expenses.

Although the Act stipulates that PPP loan proceeds may be utilized for the aforementioned uses as well as other permitted uses specified in Small Business Act section 7(a) (15 U S. C. 636(a)), the Administrator feels that the Act’s structure and limited appropriations justify requiring borrowers to use a significant amount of the loan proceeds for payroll expenses, in line with Congress’ primary objective of maintaining employment and wages for workers. This percentage is consistent with the limitation on the forgiveness amount set forth in the Flexibility Act. Because each loan that is made uses up the appropriation, even if some of the loan is later forgiven, this restriction on how the loan funds may be used will help to guarantee that the limited funds available for these loans are allocated toward payroll protection.

Can I use my PPP loan to pay new employees if my old employees want to stay on unemployment?

Yes. In order to be granted forgiveness for your PPP loan, you must allocate at least 60% of your available funds towards payroll expenses. This can include hiring new employees, hiring back old employees, or simply maintaining your current staffing levels.

Can I Finance a Car Purchase Through Private Sale?

FAQ

Can PPP loan be used for anything?

This program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

What expenses can PPP be used for?

For Borrowers Paycheck Protection Program (PPP) borrowers may be eligible for loan forgiveness if the funds were used for eligible payroll costs, payments on business mortgage interest payments, rent, or utilities during either the 8- or 24-week period after disbursement.

What happens if you misuse PPP funds?

Consequences of PPP loan fraud | PPP loan punishment You can be charged with bank fraud, under U.S. Code Title 18 U.S.C. 1344. Bank fraud is a white collar crime, and the penalty will vary based on the situation. Typically, bank fraud punishment can include up to one year in jail, and thousands of dollars in fines.

What can you not do with a PPP loan?

No, the PPP cannot be used to pay outstanding business, corporate, or property taxes. However, PPP funds can be used to cover state and local payroll taxes that you (the employer) have to pay over the loan period. Federal employment taxes are not a forgivable expense.

Can a PPP loan be used for new expenses?

PPP loans should not be used for new expenses that your business has never had before and are not intended to help expand or grow your business. The purpose of the PPP loan is to help maintain payroll costs and employment, and keep your business running.

When can I use my PPP loan?

PPP loan funding is intended to be used during the “covered period” which includes the 8 weeks (now up to 24 weeks) after your loan is approved. This is why the PPP loan request amount is based primarily on your average monthly payroll expenses multiplied by 2.5. So, on that note, these are the approved expenses for which you can use your PPP loan:

What is a PPP loan & how does it work?

The purpose of the PPP loan is to help maintain payroll costs and employment, and keep your business running. PPP loan funding is intended to be used during the “covered period” which includes the 8 weeks (now up to 24 weeks) after your loan is approved.

Can a PPP loan be used for a small business?

PPP loans for independent contractors and sole proprietors must be used to support ongoing operations and may not be used for new expenses or expanding the business. However, you can basically “pay yourself” if you don’t have employees. You may use up to 100% of your PPP funds on your payroll and still have your loan forgiven.