How the PPP, EIDL, and PUA Work Together

By Owen Yin on July 9, 2020

Editor’s note: The EIDL program is reopened as of June 15th. You can apply today through the SBA’s online portal.

The PPP, EIDL, and PUA are all COVID-19 financial relief programs that get increasingly confusing when you apply for more than one of them.

In this guide, we’ll outline how these three programs work together.

The three relief programs

PPP: Paycheck Protection Program—5-year low-interest, forgivable loan primarily for payroll.

EIDL: Economic Injury Disaster Loan—Long-term low-interest loan for sustaining operations.

PUA: Pandemic Unemployment Assistance—Expansion of unemployment benefits that includes independent contractors.

How do the PPP and EIDL overlap?

You can apply for and use the PPP and EIDL loans at the same time—you just can’t use them for the same purpose.

If you received the EIDL between January 31 and April 3, 2020 the PPP, you were able to refinance the EIDL loan into the PPP loan. This option worked best for those who were planning on using the EIDL funds for payroll, because the refinancing meant that the loan could be forgiven.

Most businesses will not have had the option of refinancing the EIDL into the PPP. In this case, the two loans will remain separate, however you cannot use the loans to cover the same expenses when you have both of them. For example, if you still have PPP funds remaining, you cannot use the EIDL for payroll. O, however once you’ve used up thoseyour PPP funds, using the EIDL for payroll will be permissible. For example, if you used PPP funds for June payroll, you’ll have to use EIDL funds for a different payroll period or for other approved working capital uses.

Further reading:

How do PPP and unemployment benefits overlap?

These two programs are not compatible with each other. While you can apply for both programs, you cannot collect funds from both programs at the same time.

If you are approved for both programs however, your PPP funds would be considered “income” and you would need to report that income to the state employment insurance department. If you do not report your PPP funds to the state, you could be liable for EI fraud. Once you do report your PPP loan as income, your unemployment benefits may stop. Your state may ask you to repay some or all the unemployment funds for the period where you were receiving both.

After your PPP coverage ends, you can resume collecting unemployment benefits, if you still require it.

Further reading:

How do EIDL and unemployment benefits overlap?

You can take advantage of both of these programs at the same time. You just can’t use the funds for the same purpose (in other words, you can’t use the EIDL to pay yourself—you need to use it for your business operations).

Example scenarios

Here are some example scenarios of how these three relief funds could overlap for different types of businesses, and our suggestions on what to do if this resembles your situation.

Note that these suggestions are provided for illustrative and informational purposes to assist in understanding these programs better. Do not take this as legal opinion or advice. Consult with a CPA or financial advisor for next steps.

Malone, sole proprietor

Malone has an ice cream stand called “Malone’s Cones”, of which he is a sole proprietor. He’s been financially affected by COVID-19, since he can’t go out and sell ice cream anymore. Malone qualifies for the PPP, EIDL and unemployment insurance. He applies to all three programs and receives funding from all of them on the same day. How should Malone use these funds? Here are our recommendations, based on the current guidance.

1. Malone should claim his owner compensation replacement from the PPP

Our reasoning: The PPP is restrictive, and needs to be mostly used for payroll purposes. As a sole proprietor, he should claim his eight weeks’ worth of compensation immediately for the following eight weeks that the PPP covers.

Because Malone had a PPP loan before the PPP Flexibility Act was passed, he can continue to use the 8-week forgiveness period, rather than the revised 24-week period.

2. Malone should pay his rent and utilities, and claim them for forgiveness with his PPP loan

Our reasoning: business-related rent and utilities (along with mortgage interest) are approved forgivable expenses of the PPP.

Malone stores his ice cream in freezers dedicated to his business in his apartment. Because the space was solely dedicated to his business, the IRS allows for a portion of his personal rent and electricity bill to be deducted for business purposes. He claimed those home office expenses in 2019, so he can claim the expenses over the PPP’s eight-week period as well.

So Malone should continue paying his rent and electricity bills as usual, and keep records so he can claim a portion of those expenses for forgiveness, using the remaining 25% of his PPP loan.

3. Malone should hold onto his EIDL funds for working capital

Our reasoning: The EIDL has a long repayment period, so Malone should use it for working capital once his business starts back up again.

Malone didn’t get a very large EIDL, because he doesn’t have many operating expenses to begin with. But once his state allows him to start selling his ice cream, he can use the EIDL funds to build up his ice cream inventory.

Malone won’t use the EIDL funds to pay himself, because he’s already taken the owner compensation replacement from the PPP, and because the EIDL cannot be used for owner disbursements.

4. Malone should report his PPP income to his state’s labor office

Our reasoning: The owner compensation replacement is considered to be income. Income needs to be reported to the labor office when you are claiming unemployment benefits.

Malone’s income will be covered for the PPP’s eight-week period. Ideally, he should not have applied for unemployment yet. But since he’s already in the system, he should report the income in his weekly filing, to avoid EI fraud. The employment office will reassess his eligible amount appropriately.

After the eight weeks, Malone can continue collecting unemployment benefits.

Tahani and Kamilah, partnership

Tahani and Kamilah own an art studio called “Two Birds” together, as a partnership. They share equal ownership of the business. They work exclusively from their studio gallery, where they create and sell art, as well as take on commissioned work from local businesses looking for specific pieces. They have one contractor that works on commission, contacting potential businesses. Due to COVID-19, they’ve seen a significant decline in sales. Tahani has started doing some art in her home.

Kamilah applied on behalf of the company for the PPP and EIDL. They received the PPP from a fintech lender first, and got the EIDL funds a month later.

1. Tahani and Kamilah should claim their owner compensation from the PPP

Our reasoning: The PPP is restrictive, and needs to be mostly used for payroll purposes.

As general partners, they will claim their Self-Employment Income reported on their 2019 Schedule K-1, multiplied by 0.9235 to remove the partnership entity’s share of self-employment tax.

They will not use the PPP to pay their contractor, because it is not an eligible expense.

2. They should pay their gallery rent and utilities, and claim them for PPP forgiveness

Our reasoning: business-related rent and utilities (along with mortgage interest) are approved forgivable expenses of the PPP.

Tahani and Kamilah should continue paying their rent and utility bills as usual, and keep records so they can claim a portion of those expenses for forgiveness, using the remaining 25% of their PPP loan.

Tahani will not be able to claim the mortgage interest on her home as a forgivable expense, even though she’s performing business activities there now. For forgiveness, the PPP requires that you claimed (or were eligible to claim) the deduction in 2019.

3. They should pay for their art supplies, the contractor, and other working capital with the EIDL

Our reasoning: The EIDL is designed for working capital use.

Tahani and Kamilah are allowed to use the EIDL to pay their contractor. Since there’s not much demand for new art right now, they’ve asked the contractor to help them revamp their website to strengthen their web presence. They can use EIDL funds for general working capital.

Tom, S corp

Tom owns a bistro that offers classy Italian fare. He files as an S corp. When COVID-19 started to affect his business, he was one of the first ones to apply for the EIDL. After having to lay off his staff, he applied for the PPP as well and finally received it.

He has several staff on payroll, with a mix of full-time and part-time employees. All of the employees are collecting unemployment benefits, and some are no longer willing to come back to work.

Tom pays himself through owner draws whenever he wants.

1. Tom should refinance the EIDL into his PPP loan

Our reasoning: The EIDL must be refinanced if it is being used for payroll purposes.

Because Tom had an existing EIDL when he applied for the PPP, and he was using the EIDL for payroll, his EIDL will be refinanced. The EIDL will be considered to be fully paid off, and the balance will be added to the outstanding PPP loan amount.

2. Tom should use the PPP to rehire workers

Our reasoning: the PPP is meant to protect paychecks and allow affected workers to receive pay again.

To maximize forgiveness, Tom will make good-faith efforts to contact his employees and offer to rehire them for the same pay rate as before.

Some of his employees no longer wish to come back. Tom will document the written rejections. His forgivable amount won’t be impacted, even though his headcount (FTE) was reduced, because he qualifies for an exemption.

Tom decides to reduce the hours of all his full-time employees to a part-time basis, because there is not much work available. He will see a reduction in his forgiveness amount, due to the decreased FTE. He will not be double-penalised for a wage reduction, because the hourly wage was not changed.

The employees will need to report their income to the labor department.

3. Tom cannot benefit from the PPP or the EIDL

Our reasoning: owner draws are not eligible uses of PPP or EIDL funds.

The PPP limits owner-employees to the compensation received in 2019. Since Tom was not on payroll, he cannot claim any amount for forgiveness.

The EIDL lists shareholder distributions as a disallowed use of funds.

Further reading: Owner Draws and the PPP

More PPP 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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