SBA PPP vs. EIDL during Coronavirus Pandemic

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Updated 01/11/21

Please note: In January 2021, as part of the $900 billion COVID-19 relief bill, Congress has authorized $284 billion for the Paycheck Protection Program(PPP). The U.S. Small Business Administration and Treasury issued new guidance on a new round of Paycheck Protection Program (PPP) funding.

On January 11th, the Paycheck Protection Program will reopen for new borrowers and certain existing borrowers. To promote access to capital, initially, only community financial institutions will be able to make first-time (First Draw) PPP Loans on Monday, January 11th, and Second Draw PPP Loans on Wednesday, January 13th.  The PPP will open to all participating lenders shortly thereafter. The new round of PPP funding starting in January 2021 will also aim to fund more of the underserved business owners, women-owners, veterans, and minority-owned businesses. Full guidance on this can be read here.

The first and most important step to apply for SBA funding is to contact your community financial institution or banking partner. While the SBA is administering these loans, they will be serviced by banks, credit unions and SBA-approved lenders. Each lender is prioritizing by their current customers.

The second step is to make it a priority to apply if you haven’t already. Don’t delay, funds are available on a first-come, first-served basis.

PPP vs EIDL – How do the Loans Compare?

These are two separate programs and the benefits of each depend on your business and situation. For first-time PPP loans, a business can borrow up to 2.5 times their average monthly payroll in loans that are 100% forgivable if they do not lay off any employees or if they rehire employees they’ve already laid off. A business can also apply for a second-draw PPP loan if they have already used a previous PPP loan.

The EIDL allows businesses to borrow up to $2 million in loans and includes a grant of up to $10k. Read our FAQs as follows for more information on each loan.

What is the Paycheck Protection Program (PPP)?

The primary purpose of the Paycheck Protection Program is to cover payroll costs. For a self-employed person, payroll includes paying yourself for services you perform. If you have employees, the primary benefit of PPP is geared toward protecting your employees and a portion of this loan can be forgivable. The PPP loan amount can be up to 2.5 times a business’s average monthly payroll costs, or up to maximum of $10 million for first-time (first-draw) PPP loans.

As of January 2021, one of the biggest updates to the new PPP is that additional second-time (second-draw) funding is also available to businesses that had previously received a PPP loan.

Borrowers are eligible for a second-time PPP loan of up to $2 million, provided they have:

  • 300 or fewer employees.
  • Have used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower. The IFR also clarifies that the borrower must have spent the full amount of the first PPP loan on eligible expenses.
  • Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019, or, in a provision added in the IFR, a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.

What are the PPP Loan Forgiveness Rules?

For full details on the most up to date PPP loan forgiveness rules, go to the SBA PPP website.

Borrowers may be eligible for loan forgiveness if at least 60% of funds were used for payroll costs, payments on business mortgage interest payments, rent, or utilities during either the 8- or 24-week period after disbursement. A borrower can apply for forgiveness once it has used all loan proceeds for which the borrower is requesting forgiveness.

It’s important to understand the instructions and fill out the PPP loan forgiveness application. This application needs to be submitted to the PPP lender you are working with.

Below is a high-level summary of some of the PPP Loan forgiveness rules:

  • Employee and compensation levels must have been maintained in the business
  • Borrowers must have spent at least 60% of their loan on payroll-related costs
  • From January 2021, PPP loans can also have been used for additional expenses including operations expenditure, property damage costs, supplier costs, and worker protection expenditures
  • From January 2021, the PPP provides greater flexibility for seasonal employees
  • Extended loan repayment period from 2 years to 5 years. This maintains an interest rate of 1%
  • Borrowers will be eligible for a 2-year deferral of the employer’s share of Social Security payroll taxes

Download the instructions and application directly from the SBA website: PPP Loan Forgiveness Application

 

Q. What can PPP be used for?

Payroll, employee salaries, mortgage interest, rent & utilities, and interest on debt. As per updates to PPP loans from January 2021, PPP loans will also cover additional expenses, including operations expenditure, property damage costs, supplier costs, and worker protection expenditures. For full details, go to  the SBA website

Q. How much can I qualify for with PPP?

2.5x your business’s average monthly payroll (with 3.5x average monthly payroll for specific industries like restaurants and hospitality). There is a maximum PPP loan amount of $10 million for first-draw PPP loans, and a maximum amount of $2 million for second-draw PPP loans.

Q. What are the terms for PPP?

No payments for the first 6 months. Thereafter; 1% fixed APR for up to a 5-year repayment term.

Q. How do I apply for PPP?

As a small business owner, it’s important to contact your community financial institution, FDIC-insured bank, credit union, or approved SBA lender immediately to submit your application.

If you already applied through your banking partner, be sure to confirm your original application is still in the system. Each has its own requirements, such as having a business checking account.

What if you don’t have a business checking account, or the bank that has your business checking account doesn’t take your application?

SBA’s website lists their district offices near you, and each district office has a website and Resource Guide for its district. This Resource Guide should include a list of local SBA lenders in the district. You can call or visit those banks’ websites to see which bank will take your application for the Paycheck Protection Program.

Q. What Is the deadline for applying for a PPP loan?

A new round of PPP loan funding was introduced in January 2021. For full information on when you can apply for the new round of PPP loan funding, go to the new guidance on PPP loan program.

Q. How much of PPP is forgivable?

Up to 100% upon approval.

 

What is an Economic Injury Disaster Loan (EIDL)?

If you are self-employed and do not have employees, this may be a good option for you. The federal Small Business Administration (SBA) runs the Economic Injury Disaster Loan (EIDL) program directly. A part of the loan may be forgiven (up to $10k).

Q. What can EIDL be used for?

Payroll, fixed debts, accounts payable, other expenses that you are unable to pay directly due to the Covid-19 impact.

Q. How much can I qualify for with EIDL?

Up to $2 million.

Q. What are the terms for EIDL?

3.75% APR for up to a 30-year term.

Q. How do I Apply for EIDL?

An additional $60 billion to fund Economic Injury Disaster Loans (EIDL) was part of the $484 billion additional relief package approved in late April.

Apply online at covid19relief.sba.gov. It doesn’t cost anything to apply.

On the application, you can check the box to be considered for an advance before your loan is finalized. You will need to provide a bank routing number and account number for them to deposit the loan advance.

Q. How much of EIDL is forgivable?

Up to $10k available as an emergency grant, upon approval.

The SBA will determine how much loan advance they will give you, and when they will send the loan advance. If you receive a loan advance, the advance won’t have to be repaid. The loan advance may be $10,000, but it may be less.

Q. Can I apply to Both PPP and EIDL?

Yes, you can apply for both. But you can’t use the funds from both loan programs for the same purpose. For the most updated and complete information, read the FAQs on the EIDL and FAQs on the PPP.

For more information, visit The SBA has a hotline to help answer questions 1-800-659-2955, 7 days a week from 7:00a.m. to 9:00p.m.

 

Disclaimer:

As of publish date, while the information provided in this article is intended to be accurate, it should not be considered legal advice. These programs are rapidly evolving and we cannot be held responsible for any errors or omissions. Please contact your local bank, SBA and U.S. Treasury websites for updated information. You should also consult with your tax, legal or financial advisor to make the right choice for your business.

 

Reference

COVID-19 Relief for Small Business, U.S. Small Business Administration

 

 

 

29 comments on “SBA PPP vs. EIDL during Coronavirus Pandemic”

  1. Alex Jun on

    I worked as a freelance consultant and a tutor for the last 8 years but was forced to quit my jobs due to the coronavirus outbreak. Although I received 1099 forms from the parties I worked for, I don’t have an official business registered and business accounts. Am I qualified for PPP or SBA Disaster Loan?

    • The Bottom Line Blog Team on

      Hi Alex,

      Your best resource for your specific situation is to check the SBA website directly or work with your business bank or credit union. At this time, the $349 billion has hit it’s cap, but talks are underway to provide additional emergency relief funds.

      We wish you the best during this difficult time.

    • Nick on

      In response to Alex:

      Yes, you are, but it has to be based off of your income from your 2019 return (Schedule C) – you can’t use your 2018 return, so you’ll have to complete your 2019 if you haven’t done so already.

  2. mike on

    If I received both EIDL and PPP, can I return the PPP in full and keep the EIDL since I may not meet then forgiveness requirement?

    • The Bottom Line Blog Team on

      Hi Mike,

      This is a great question! Since the PPP is being funded through your banking partner or SBA-approved lender, we suggest you follow up with them directly to confirm the PPP funds can be returned in full. We wish you the best of luck during this difficult time.

    • The Bottom Line Blog Team on

      Hi Mike,

      Yes, you can utilize both loans; but you cannot use the funds for the same purpose.

      • Mohammad Miah on

        As a self employed I am applied ppp with Bank of America and I am applied also Sba loan
        My questions is I can apply both ?
        If I am approved for ppp they can cancel my Sba application?
        If I am approved for both can I keep both loan & how can I use?
        How I know my loan is forgiveness?
        Please let me know

        • The Bottom Line Blog Team on

          Hi Mohammad,

          These are all great questions. Based on your comments, it sounds like you have applied for loans. For your questions specific to the PPP program, please contact Bank of America as your application will be processed through the bank. You can also find the latest and most accurate updates and clarification on both programs on the SBA website.

          Best of luck and we wish you all the best during these difficult times.

      • Lewis Nguyen on

        Hi there,
        Just to clarify. If I received both PPP and EIDL, I could legally use the EIDL to pay the rent and PPP for payroll. Would that be alright and not considered as double dip?
        Thank you

        • The Bottom Line Blog Team on

          Hi Lewis,

          Based on your statement of how you would use the funds, covering rent and payroll are two separate purposes. However; we recommend you review details for these programs directly through the SBA website and/or discuss with your business banking partner for specific guidance as it pertains to your business situation.

  4. Phil Johnson on

    I own 3 gas station with convenience store, and never closed during the stay home order and my sales was not effected.
    Do I qualify for PPP or EIDL , and is that loan will be forgiven.

    • The Bottom Line Blog Team on

      Hi Phil,

      Great question. We recommend you review details for these programs directly through the SBA website and/or discuss with your business banking partner for specific guidance as it pertains to your business situation.

      Our best to you and your businesses.

  5. Sally on

    We applied for the EIDL and the PPP plans. We received both. I just read on the above comments that you can have both but you cannot use them for the same thing. My questions is: Is that correct you can get both the EIDL and the PPP? I also read that you cannot use it for the same thing. If you cannot use it for the same thing what would the other qualify to be used for? Could you please give examples. It has been one tough road. We were shut down on March 23rd and with no money coming in I have had very little sleep. Thank you

    • The Bottom Line Blog Team on

      Hi Sally,

      These are great questions and we empathize with your situation. You can receive both EIDL and PPP. However; for further clarification on specific information and uses for each loan, refer to the SBA website and/or discuss with the banking partner or lender you are working with for PPP.

      We wish you all the best.

    • The Bottom Line Blog Team on

      Hi Gregory,

      For an answer to this question and more specific details about the EIDL loan, we recommend you review directly through the SBA website.

      Great question — thank you.

  7. Stephen on

    My accountant told me that the EIDL advance is still forgiven (a grant) if you use it on something other than what you use the PPP loan for. Is that correct? I thought the EIDL amount would be subtracted from the PPP amount forgiven no matter what. Thank you!

    • The Bottom Line Blog Team on

      Hi Stephen,

      Thanks for your inquiry. We suggest you review details for these programs directly through the SBA website, your business banking partner and your accountant for guidance as it pertains to your specific business situation.

      Our best to you and your business.

  8. Steve D. on

    Would like to clarify the statement using the funds for the same purpose, example. We received our EIDL grant early on and have used it for our Payroll. Those funds are now exhausted. We have not received our PPP funding yet but, when we do our plan was to use these funds for payroll until we are allowed to get back to normal. I would not consider that double dipping as both funds are used at different times therefore both consider forgivable, thoughts?

    • The Bottom Line Blog Team on

      Hi Steve,

      Thanks for your inquiry. This is a great question. We recommend you discuss with the SBA-lender or banking partner you are working with for your PPP loan for specific guidance and clarification.

      Our best to you during these difficult times.

  9. Alix B. on

    Hello! We received the PPP and the EIDL. Understanding that the money from the EIDL needs to be used for different expenses than the PPP, does the EIDL money lessen the forgivable amount of the PPP loan (besides the advance amount)?

  10. Dave Smith on

    I received the PPP loan it is being used for payroll. We qualified to take the EIDL loan but haven’t yet. I would primarily use the EIDL loan to pay off a payroll tax lien from prior years for the business. Is this something that is allowed?

  11. Katherine Legg on

    Why does it state on the ppp forgiveness application that you put in the amount of the edil you got and your forgiveness will be reduced by that amount. Then why did it say you can get both if they are just going to take it away?

    • The Bottom Line Blog Team on

      Hi Katherine,

      Thanks for your question. Each business owner’s financial needs and situation is different, so this is a great question to ask the SBA-lender or bank you are working with for your PPP loan. In addition, there may be FAQs and information on the SBA.gov website.

      We wish you the best.

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