Be Careful of This Mistake If You Get Both PPP & an EIDL Loan | USTaxAid

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Be Careful of This Mistake If You Get Both PPP & an EIDL Loan

Written by Diane Kennedy, CPA on June 21, 2020

The most popular part of CoronaTax was the “Free Money!” and if you have a business or real estate, that meant the two SBA programs, Paycheck Protection Plan (PPP) and Economic Injury Disaster Loan (EIDL). 
The PPP was a loan based on payroll. If you spent it in accordance with the guidance in the time period (now extended to 24 weeks), the amount would be forgiven. The loan, in all or in part, became a grant. It is available for small businesses and non profit organizations.
The EIDL was a loan available for small businesses, non profit organizations and real estate investors. That’s a big change as a result of CoronaTax. Real estate investors can now also get SBA loans, or at least this one.  

EIDL also has a grant possibility, based on the number of employees. You can receive $1,000 per employee in a grant that you don’t have to pay back. Otherwise, the EIDL is a loan that you will have to pay back. But, it’s a good loan at just 3.75% interest and fully amortized for 30 years. Plus, you have a year before you have to start making payments 

If you qualify for both the PPP and EIDL, you can have both. But now comes the big question, how does it work if you have both loans? How do they work together?  

First, let’s look at how you decide which expenses can be used for which loans. There is some overlap, but you can’t use one expense for them both. It’s one loan or the other.  

 Not both.  

PPP funds can be used for qualified payroll costs, rent, mortgage interest and utilities. Newly updated rules have told that us 60% or more of the funds must be used for qualified payroll costs and the rest is available for rent or mortgage interest and utilities.  

EIDL fund uses are more broadly defined. You can use those for financial obligations (including credit card payments, consumer debt and property loans) and operating expenses that could have been met if the pandemic hadn’t occurred. 

What happens if you get an EIDL loan first and later get a PPP? 

If you got an EIDL prior to 4/3/2020 and used it for payroll expenses, you must refinance the EIDL by carrying over the balance into your PPP loan. That’s not a horrible deal, since you’re going to be trading in a 3.75% interest loan for a 1% interest loan (PPP), but you are also changing a 30-year amortization for a 5-year amortization.  

If you get an EIDL after that date, just make sure that you don’t use EIDL funds for payroll. Save those expenses for the PPP loan/grant and you won’t have an issue with that. 
But, pay attention to this next part. This could still apply.
How does the PPP loan and EIDL advance work together?  

EIDL provides for advances of up to $10,000, which is calculated as $1,000 per employee. This advance does not have to be repaid as long as you use it in accordance with the EIDL rules.  

If you receive an EIDL advance and a PPP loan, proceeds from the advance will be deducted from the loan forgiveness amount. 

As an example, let’s say your business gets a $25,000 PPP loan (possible grant) and then gets a $5,000 EIDL advance. The amount of the advance is subtracted from the PPP loan. So, the most that can possibly be forgiven is $20,000 ($25,000 – $5,000). The rest of the PPP loan/grant of $5,000 will need to be repaid.  



  1. ANGIE MIKER says:


  2. Diane Kennedy says:

    Please see the article that you posted your comment on. That was the subject that was discussed.

  3. Otis says:

    Hi Diane:
    That last statement: “The rest of the PPP loan/grant of $5,000 will need to be repaid. “
    If That remaining $5k was an EDIL advance, it doesnot have to be “repaid” unless you used it in a manner that did not qualify,like for payroll. Right?

  4. Diane Kennedy says:

    The way PPP and EIDL work together continues to be confusing.

    The last paragraph sums up the current law (December 2020).

    If you receive both an EIDL advance and a PPP loan, the PPP loan can be forgiven (provided you meet all other requirements). HOWEVER, if you also have an EIDL advance, you can’t get that portion forgiven. You will need to pay that back.

    The following Q & A describes this situation and is directly taken from the SBA 8/11/2020 statement:

    Question: SBA will deduct the amount of any Economic Injury Disaster Loan (EIDL) advance received by a PPP borrower from the forgiveness amount remitted to the lender. How will a lender know the amount of the EIDL advance that will be
    automatically deducted by SBA?

    Answer: If a borrower received an EIDL advance, SBA is required to reduce the borrower’s loan forgiveness amount by the amount of the EIDL advance. SBA will deduct the amount of the EIDL advance from the forgiveness amount remitted by SBA to the lender. The lender will be able to confirm the amount of the EIDL advance that will be automatically deducted by SBA from the forgiveness payment by reviewing the borrower’s EIDL advance information in the PPP Forgiveness Platform.

    2. Question: How should a lender handle any remaining balance due on a PPP loan after SBA remits the forgiveness amount to the lender?

    Answer: If a PPP loan is not forgiven in full (including if there has been a reduction in the forgiveness amount for an EIDL advance), any remaining balance due on the PPP loan must be repaid by the borrower. The lender is responsible for notifying the borrower of the loan forgiveness amount remitted by SBA and the date on which the borrower’s
    first loan payment is due. The lender must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or
    five years). If a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other
    available remedies.

  5. Michelle says:

    I was confused, scared, stressed. I received notice from lendio that I was approved for a PPP. Then the SBA sent me loan documents. I thought we are in a disaster so this must be it. A disaster loan. Has to be paid back if not Safe Harbor qualified. I called SBA they said loan officer would call and would answer all my questions. Next day 150K deposited in my account. I followed all the PPP rules. I completed forgiveness app,. sent response. sent again no response. called…oh my… I’m told my is not forgiven it was a disaster loan. We are non profit childcare center that stayed open to serve emergency workers and now we are faced with repaying 150k. OMG…..Be carefule

  6. Diane Kennedy says:

    Michelle, since this blog was written, we have had a change in rules.

    Don’t panic!

    If you received a PPP loan, you can apply for forgiveness. It will NOT be taxable. You just need to prove that you have spent the money in accordance with the terms of the loan.

    If the lender didn’t respond to your application for forgiveness, you probably should contact them to find out what happened.

  7. We applied for an EIDL loan and because our business is mobile we used our home address as business address. We were denied because our business is not in a “low income” neighborhood. I travel to locations in any of the 50 states to assist with the installation of our kitchen fire suppression system. We are the exclusive United States distributor of the Kitchensafe system. We install in Senior living residences, day care facilities, hospitals, campus housing, and schools. We feel there should be some type of policy modification to the zip code rule in this case. Many of our customers businesses are in “low income” neighborhoods. This is a fact we can prove, as we service 50-60 day care facilities that are in “low income” neighborhoods. This is a “life safety” issue and these systems are required by state law. These businesses need to stay compliant.

  8. Diane Kennedy says:

    Hi Thomas,

    There are several EIDL programs available. The low income community loan is just one of the many programs. There are also EIDL COVID programs which do not require that you are in the low income area.

    I’d suggest that you check on those loans.

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