PPP vs. EIDL: A Simple Breakdown

Has COVID-19 impacted your business? 

According to Yelp’s Local Economic Impact Report, a total of 163,735 U.S. businesses have closed since the beginning of the pandemic. The August data shows a 23% increase in closings from July. If your business is in a similar situation, you have options. 

Earlier this year, the federal government released several stimulus programs funded under the Small Business Administration. The two most significant programs are the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP). 

Not sure what these programs entail or if you qualify? Keep reading to learn about which program is best suited for your business. 

Paycheck Protection Program

The Paycheck Protection Program is a loan designed to directly incentivize small businesses to keep their workers on the payroll. Because of the PPP Flexibility Act, which was signed into law on June 4, 2020, this also includes sole proprietors, contractors, and gig workers. 

This program is designed to help Americans stay employed and retain their salaries. The payout received will be based on your average monthly payroll expense multiplied by 2.5. Under the PPP, your payroll expense can include your salary expenses and health insurance premiums.

Here’s what the PPP entails: 

  • PPP loans have an interest rate of 1%.
  • Loans issued before June 5 have a maturity of 2 years. 
  • Loans issued after June 5 have a maturity of 5 years.
  • Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
  • No collateral or personal guarantees are required.
  • Neither the government nor lenders will charge small businesses any fees.

The PPP closed on August 8, 2020, but you could be eligible for forgiveness if you already received funds. 

What Qualifies for Forgiveness?

PPP borrowers may be eligible for loan forgiveness if 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. 

Businesses structured as C corporations or S corporations must use payroll to pay their owners because the corporation is taxed separately from the individual. If you own a corporation and have not been paying yourself a salary through payroll, you will not have a salary covered through the PPP. Your salary won’t be covered because distributions or dividends from a corporation are not considered to be a salary or self-employment income.

A borrower can apply for forgiveness once it has used all loan proceeds for which the borrower is requesting forgiveness. Borrowers can apply for forgiveness at any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.

Your PPP Lender can provide you with either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a Lender equivalent. The SBA offers details on what steps to take to apply for forgiveness. 

Economic Injury Disaster Loan

Unlike the PPP, the EIDL is an ongoing program, and you can still apply. The purpose of the EIDL is to help businesses meet financial obligations and operating expenses that could’ve been met had the disaster not occurred. These expenses include working capital & normal operating expenses like a continuation of health care benefits, rent, utilities, and fixed debt payments.

These expenses do not include:

  • Dividends and bonuses
  • Disbursements to owners, except when directly related to the performance of services
  • Repayment of stockholder/ principal loans
  • Expansion of facilities or acquisition of fixed assets
  • Repair or replacement of physical damages
  • Refinancing long term debt
  • Relocation

The EIDL advance was a grant program offered together with the economic injury loan program. The amount of the grant was determined by the number of employees indicated on the EIDL application: $1,000/employee, up to a maximum of $10,000. The grant is no longer available, but if you received those funds, you do not have to pay them back. 

Can You Apply for Both? 

The simple answer is yes. You could have received funds from both the PPP and EIDL but remember the PPP ended as of August 8, 2020. 

While the PPP has already ended, you can still apply for the EIDL. If you applied for the PPP before August 8, note that you cannot use funds from both loans for the same purposes.

For example, you can’t use both programs towards payroll expenses. If you used PPP funds for June payroll, you’d have to use EIDL funds for a different payroll period or other approved working capital uses. If an EIDL loan financed between January 31 and April 3 is used for payroll costs, it will be refinanced into your PPP loan if you apply for one.

Your EIDL advance grant can’t be combined with the PPP.

The EIDL did come with an advanced grant of up to $10,000 (this grant has since ended). As a grant, it won’t have to be paid back. However, it will be subtracted from the PPP loan forgiveness amount and has to be declared when you apply for the PPP and when you apply for PPP forgiveness.

Do You Still Have Questions?

Whether you’ve already received funds or you’re planning to apply, we can assist you. 

The EIDL application will require you to provide information on your business’ gross revenue and cost of goods sold over the last 12 months. If you don’t have this information handy, you’ll likely need retroactive bookkeeping done so you can calculate this number correctly. Receiving forgiveness for the PPP will require thorough record-keeping as well. 

If you need professional assistance with your bookkeeping records or completing your application, contact us today.