EIDL vs Paycheck Protection Program: The Breakdown

By Brian Miura-Wong and Grieko Geronimo on April 23, 2020

Editor’s note: The PPP has now been replenished for round two. For the PPP, we encourage all eligible small businesses to apply now through their financial institution or through an online lender as the funds will quickly run out. If you need 2019 bookkeeping completed for your application, Bench can help.

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).

What are the differences between the EIDL and the PPP?

EIDL PPP
Maximum loan amount $2 million $10 million
Forgivable? $10k advanced grant included Yes
Collateral required? Possibly, depending on loan amount No
Credit check required? Yes No
Automatic payment deferral 12 months 6 months
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
Approved uses of loan funds Fixed debts (rent, utilities, etc.)
Payroll
Accounts payable
Some bills that could have been paid had the disaster not occurred
Payroll expenses
Rent
Mortgage interest
Utilities

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, your PPP amount will have to be used to refinance the EIDL.

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.

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 8-week PPP coverage, you can apply 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
  • 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 have a net profit reported 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 8-week period after receiving the loan. That is why at least 75% of the loan must be used towards payroll expenses in order to be considered for 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 8 weeks and then applying for unemployment once that period is over if no new aid has been announced.

The role of bookkeeping

The EIDL 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.

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

More resources


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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