The PPP Loan is NOT your only option, and it may NOT be the best financial help option for your business. Depending on your case the EIDL + IRS Employee Retention Credit may be a better option for you. #ppp #eidl #erc #erccredit #sbaloan #eidloan #ppploan #employeeretentioncredit
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This video is intended for education purposes and should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Freedomtax Accounting and Multiservices Inc. is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience. Freedomtax Accounting and Multiservices Inc. or its members cannot be held liable for any use or misuse of this content.
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The two biggest stimulus programs for small businesses are the SBA’s Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP). What are the differences between them? Is one better than the other?
In this article, we break down both options so you can decide which one is right for your business (that being said, most qualified businesses will be able to receive both).
Should I apply for both?
Yes, you should! Applying for both loans ensures that you take full advantage of these programs to support your business. There are a few conditions to keep in mind when using both loans:
You cannot use funds from both loans for the same purposes.
For example, you can’t use both EIDL and PPP towards payroll. As long as you do not use the EIDL for payroll costs, your PPP eligibility will not be affected. If the EIDL is used for payroll costs, it will be refinanced into your PPP loan.
Your EIDL advance grant cannot be combined with the PPP.
The EIDL can come with an advanced grant of up to $10,000. 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.
How to apply
You can apply for the EIDL directly through the SBA (apply here).
For the PPP, you’ll need to apply through an SBA-approve lender (here’s a list). We recommend applying through a financial institution you already have a banking relationship with—that’s the fastest way to get approved.
How do I take advantage of both loans?
Since the PPP and EIDL cannot be used towards the same expenses, the best practice is to use the PPP for any payroll expenses and the EIDL for all other working capital. This will ensure that you can get the PPP forgiven while still covering your business expenses.
After the 24-week PPP coverage, you may be eligible for unemployment benefits (including the recently announced Pandemic Unemployment Assistance) while still using the EIDL for your business.
When would the EIDL not be a good choice?
Generally, the EIDL is a great loan that you should take advantage of, if you can. However, the EIDL isn’t for everybody.
First, you simply won’t be eligible for the EIDL if you are delinquent on existing SBA loans, loans from another federal agency, or payment of any part of a direct federal debt except IRS obligations. In order to be eligible, the SBA expects applicants to be on good terms with federal loan issuing agencies and the SBA.
The second reason why the EIDL may not be the best choice for your business is dependent on what you as a business owner would like to use the EIDL funds for. Despite the freedom of fund usage as compared to the PPP, there are still a number of ineligible uses of the EIDL loan. If your intentions were to use the EIDL loan towards these ineligible expenses, the EIDL would not be the best option for you.
These expenses include:
Dividends and bonuses
Disbursements to owners, except when directly related to 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
When would the PPP not be a good choice?
The biggest disqualifier for the PPP is if you do not run a payroll and pay yourself through owner draws or member distributions.
Your PPP loan is calculated based on wages that employment and self-employment taxes have been paid on.
Draws and distributions are not subject to these taxes and cannot be used in the PPP loan amount calculation. If you are a sole prop or partnership and did not have a net profit reported in 2019 (i.e. you had a net loss), you also would not be eligible for the PPP.
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