The SBA provided guidance recently on the interaction of PPP loan forgiveness with advances on the Economic Injury Disaster Loans (EIDL), in the form of adding three Q&As to its August 11th FAQs.
Many of my clients, as well as countless other small businesses, applied for loans under both the PPP and EIDL programs and received them. For EIDL, they could receive 1) an advance grant (generally measured at $1000 per employee), which in theory was automatically forgiven, and 2) a 30-year working capital loan at an interest rate of 3.75% (2.75% for nonprofits). Applicants could apply for or receive either the advance grant, the loan, or both.
Though the CARES Act does not call for it, and the SBA did not expressly state it, the AICPA began reporting some months ago (presumably based on information received from their regular meetings with Treasury) that the EIDL advance grant would have to be subtracted from PPP forgiveness. There was much disagreement in the CPA world as to whether or not this was indeed the case, as the SBA forgiveness application could be interpreted either way.
However, with these new FAQs, the SBA has put an end to that debate, confirming the AICPA’s position that the EIDL advance grants must be subtracted from PPP forgiveness.
The good news here is that at least these will, in effect, be converted into the PPP 1%-interest loans, rather than the 3.75% EIDL. The bad news is that the PPP loan term is only 2- or 5-years (depending on when the loan was signed), rather than the 30-year EIDL.
Therefore, if you have a large EIDL advance grant (at one point these were capped at $10,000, but there are some out there for more than this amount), and you will be challenged by paying it back, take a look at your PPP loan term. If it is 2 years (for loans prior to June 5), then contact your PPP lender to extend the PPP loan to a 5-year period.
This would be particularly important if the EIDL advance grant was larger than your PPP loan, as in these cases there will be no forgiveness.
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