PPP, EIDL, Both? Choosing the Right COVID-19 Business Loan(s)

You’ve got options when it comes to government financial aid for your pandemic-impacted business. But which one is right for you will depend on your needs and business model.

Here we’ll discuss the federal government’s Payroll Protection Program (PPP) and the Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL).

Compare the Pros and Cons

	PPP	EIDL
Maximum loan amount	$10 million	$2 million
Forgivable	Yes	$10,000 of it (advance grant)
Collateral required	No	Depends on the amount of loan
Credit check	No	Yes
Loan terms	1%, 2 years	3.75%, up to 30 years (2.75% for non-profits)
1st payment deferral	6 months	12 months
Approved uses	Payroll expenses Rent Mortgage interest Utilities	Payroll expenses Fixed debts (e.g. rent, utilities) Accounts payable Some bills that could have been paid if the disaster hadn’t occurred
Where to apply	Approved lender	SBA website

Can You Apply for Both Loans?

Yes, most businesses can — and probably should —so that each covers what the other one doesn’t. Just remember that:

• You can’t use funds from both loans for the same purpose, such as payroll costs
• The EIDL grant can’t be added on top of the PPP forgiveness amount; on the contrary, it will be subtracted

Who Can’t/Shouldn’t Get a PPP Loan

The business is not qualified if it doesn’t have any employees and the business owners pay themselves through compensation types that are not taxed as wages.

Compensation types not taxed as wages (DON’T qualified for PPP):

• Owner draws
• Member distributions

Compensation types taxed as wages (DO qualify for PPP):

• Net profit from sole proprietorships, single-member or partnership LLCs
• Payroll expenses for corporations

Businesses that primarily use 1099 contractors won’t benefit much from a PPP loan, since whatever they pay these workers don’t count in figuring payroll costs (independent contractors can apply for a PPP on their behalf). At least 75% of the PPP must be used for payroll for the loan to be forgiven, so if that payroll figure is low, so will be the loan amount.

Also, you can’t receive unemployment benefits at the same time you’re using a PPP loan. A good workaround is to use the PPP for its 8-week life, then apply for unemployment.

Who Can’t/Shouldn’t Get an EIDL

There certainly are fewer restrictions on how you can spend the EIDL than there are for a PPP loan. However, there are some ineligible uses, and if they are what you wanted a loan for, the EIDL is not right for you. These expenses include:

• Dividends and bonuses
• Owner disbursements
• Stockholder/principal loan repayment
• Long term debt refinancing
• Facilities expansion, fixed asset acquisitions
• Physical damages repair or replacement
• Relocation

Also, you won’t be eligible for an EIDL if you are delinquent on:

• Existing SBA loans
• Loans from another federal agency
• Payment of any part of a direct federal debt except IRS obligations

Worried about the bookkeeping needed to apply for, track expenses, and pass the audit on your COVID-19 financial aid loan? Xendoo is here to help with a ton of accounting and small business expertise. Let us show you a one-month free trial.