EIDL vs Paycheck Protection Program: The Breakdown

  • Accracy
  • 26th Nov, 2023

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?

EIDL vs Paycheck Protection Program: The Breakdown

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).

What are the differences between the EIDL and the PPP?

Maximum loan amount $150k $10 million
Forgivable? No, but up to $10k advance grant included Yes
Collateral required? Possibly, depending on loan amount No
Credit check required? Yes No
Automatic payment deferral "¢ 24 months for loans received in 2020
"¢ 18 months for loans received in 2021
Until forgiveness application is processed, 10 months after end of covered period otherwise
Where do I apply? SBA website Directly from an approved lender
Loan terms 3.75%, up to 30 years (2.75% for non-profits) 1%, 2 years; 5 years for new loans
Approved uses of loan funds Fixed debts (rent, utilities, etc.)
Accounts payable
Some bills that could have been paid had the disaster not occurred
Payroll expenses
Mortgage interest

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. For example, if you used PPP funds for May payroll, you'll have to use EIDL funds for a different payroll period or for 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 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.

Further reading: How to Use the PPP and EIDL Together

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 period, 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. This generally comes in the form of:

Entity type Taxed wage type Where to find it
Sole props / single -member LLCs Net profit Form 1040 Schedule C
Partnership LLCs Net profit Form 1065 and associated K-1s
Corporations Payroll expenses Payroll reports

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 report a net profit in 2019 (i.e. you had a net loss), you also would not be eligible for the PPP.

Further reading: Owner Draws and the Paycheck Protection Program

Similar to draws and distributions, 1099 contractors are not included in the PPP calculation, even if they are regularly paid for employee-like tasks. This is because contractors are considered sole proprietors and can apply for the PPP themselves. If you're a business that primarily uses 1099s, your actual payroll expense considered for the PPP may not be very high.

It's important to note that the PPP is primarily meant to help employers pay their employees throughout the 24-week period after receiving the loan. That is why at least 60% of the loan must be used towards payroll expenses in order to be considered for full loan forgiveness. What this means for you is that if you have large expenses outside of payroll, your PPP funds will be limited in the amount you can use towards them in order to still qualify for loan forgiveness.

Finally, you cannot double-dip with unemployment benefits while using PPP funds. We recommend using the PPP for the 24 weeks and then applying for unemployment once that period is over.

Further reading: How the PPP, EIDL, and PUA Work Together

The role of bookkeeping

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 properly.

For the PPP, you don't need to have bookkeeping done to apply, so long as your business runs payroll through a payroll service and you can submit your payroll records. If you're self-employed, you'll need to submit your net profit, which you will need bookkeeping to calculate properly. Once you've been approved for the PPP, bookkeeping becomes even more important: you'll need to track your expenses in order to prove you spent the funds on the right things—this will be a key component of getting your PPP loan forgiven.

You'll want to keep the habit of keeping good books going after you've received your relief funds. Your loan agreement requires you to keep accurate books—for EIDL loans, you may need completed financial statements for the past 5 years and for every year going forward.

Don't have a bookkeeping solution in place? Accracy can help. We'll do your bookkeeping (even retroactively) and provide you with all the financial statements you need. Learn more.

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