PSA: There are 2 DIFFERENT Coronavirus loans and it's unclear if they can be used for the same purpose (payroll, expenses, etc). Please discuss

[michaell]

There are 2 loans being thrown around and it's causing a lot of confusion, so I figured we can have one place to discuss them.

The first loan is the SBA Disaster Loan Assistance https://covid19relief.sba.gov/#/ The only things they ask are for your gross revenues and your costs of goods sold. Depending on your business this may provide markedly different results. You can also ask for an up to 10k advance. I'm assuming that the 10k grant is an advance on the actual EIDL loan and I'm assuming there will be further contact to establish an actual loan which would be greater than 10k based on your needs and qualifications and based on the SBA's other guidelines. But regardless of the process it looks like the 10k is a grant and doesn't have to be repaid.

The "up to" 10k advance is a grant as defined in the bill, it also does not have to be paid back regardless of what happens with your EIDL loan.

(e) Emergency grant.— ...

REPAYMENT.—An applicant shall not be required to repay any amounts of an advance provided under this subsection, even if subsequently denied a loan under section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)).

It's still not clear how much everyone receives, it's still up to 10k but there isn't any info on how much you get or how they determine that.

(3) AMOUNT.—The amount of an advance provided under this subsection shall be not more than $10,000.

The grant/advance needs to be used for:

(4) USE OF FUNDS.—An advance provided under this subsection may be used to address any allowable purpose for a loan made under section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)), including—

(A) providing paid sick leave to employees unable to work due to the direct effect of the COVID–19;

(B) maintaining payroll to retain employees during business disruptions or substantial slowdowns;

(C) meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;

(D) making rent or mortgage payments; and

(E) repaying obligations that cannot be met due to revenue losses.

The second loan is the Paycheck Protection Program discussed here https://wcginc.com/wp-content/docum..._corona_virus_smallbiz_loan_final_revised.pdf

This loan will be administered from private banks/lenders but guaranteed federally. It will be a full application process but it's not clear yet what that entails, I'm assuming stuff like tax returns, payroll information, expenses, etc. The loan amount is based on 2.5x your average payroll amount, but you will get a certain portion forgiven which is based on 2 months of qualified expenses such as payroll, lease/rent, utilities and mortgage debt interest.

What is "forgiven" taken from the bill:

(b) Forgiveness.—An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period:

(1) Payroll costs.

(2) Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation).

(3) Any payment on any covered rent obligation.

(4) Any covered utility payment.

You can't use the EIDL grant and the PPP loan for the same purpose, but what exactly this means hasn't been clarified yet. The penalty would be if you get a 10k grant/advance then that would reduce the amount you could be forgiven. For example (as I understand it) if you got 10k from EIDL but didn't opt for an EIDL loan then later got a 40k PPP loan and you were qualified to get 30k of that PPP loan forgiven the final number would be 30k-10k = 20k forgiven.

EDIT: Cleaned up and added some more info.

 

[orianoskin]

@michaell No body is totally clear yet...prob not even the people who wrote the bill. Everyone is trying to figure it out.

I plan to use both, and I def have $10k of expenses not related to payroll/rent so I can keep them separate when asked.

 

[fatherhansen]

@orianoskin This. Same here. My monthly expenses for my business ongoing is about $40k. $10k is a drop in the bucket.

 

[nyimbi]

@michaell Here's a good comparison:

https://www.krostcpas.com/news/the-...rogram-vs-the-paycheck-protection-program-ppp

 

[countryair]

@michaell A CPA I spoke to stressed that they can’t be use for the same purpose. PPP loan has very specific forgiveness criteria, so he suggested applying for both but on EIDL loan, put down everything but the purposes specified for PPP loans. That way you will be able to get both. Also do some calculations for yourself because the EIDL grant (supposedly $10000) will be deducted dollar-to-dollar from the forgiveness amount on PPP loan. So if your payroll for 8 weeks > $10000, may be better to get PPP loan. However, no one knows what’s going on with PPP loans, so it doesn’t hurt to apply for EIDL right now.

 

[613jono]

@countryair

A CPA I spoke to stressed that they can’t be use for the same purpose.

This is 100% correct. How this will function in reality is anyone's guess right now.

 

[carlssonjeseth]

@613jono This ^