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 ^

 

[613jono]

@michaell They most definitely CAN NOT be used for the same expenses. However, payroll in Feb 2020 vs payroll in March 2020 are considered "different expenses".

You can apply for the $10k grant and still decline the EIDL loan, it just gets deducted from forgiven loan amounts.

 

[michaell]

@613jono This seems the best course. I kept my EIDL application and will just see what the PPP gives me. Worst case I just pay back what isn't forgiven, although at 4% interest with a 10 year amortization and 6 month interest free deferment it's a hell of a nice loan to buy new equipment or expand.

The only question on that 10k grant is that it's "up to" if I recall the wording correctly, and if they are using only gross revenue and cogs for determination of loan amount then I may get a very low amount since my cogs is low. I really doubt they are just giving everyone 10k. But it is VERY odd that they are skewing this away from service industries which may have low cogs.

 

[ashiedu]

@michaell My understanding is the PPP does not have an interest free deferment, interest is still accruing. Anyone have a source?

 

[michaell]

@ashiedu Yeah you are correct interest still accrues.

 

[shekinah33]

@michaell Interest accrues but is it forgiven or just the principal?

 

[613jono]

@michaell This is correct... "up to $10k". They didn't provide any info on how they determine it though, AFAIK.

 

[joshuah0208]

@michaell The grant has 10b available so it's first come first serve

Edit: The government really does not want small business to fail they may even increase the fund amount

 

[gerthor]

@michaell The amount allocated for the grants is 10Bn. So if the SBA gave 10K to each applicant, that's enough for 1 million small businesses. There are roughly 30 million small businesses in the US. So the question is if there is enough cash in the fund for everyone that will need to apply for it. The answer is likely no. However, the CARES act is pretty clear, the amount of the grant is requested by the applicant. Who wouldn't request the full amount?

 

[elahmine]

@613jono Likewise I believe February payroll for Frank is considered different from February payroll for Sammy.

 

[hvinbnd]

@613jono Where is it that you are seeing that they can't be used for the same purpose? I can't find any reference to say that that is not allowed.

 

[gerthor]

@hvinbnd If you use it for the purposes listed in the PPP that can be forgiven, it applies to the amount forgiven. At least that's what I'm reading it as. So just use if for something else.

 

[613jono]

@hvinbnd They can't be used for the same expenses. For example, you can't use them both for payroll in March 2020. You can use one for payroll in Feb 2020 and the other for payroll in March 2020.

If you don't need the money ASAP and you have decent payroll - I'm telling people to forget about the EIDL and just go for PPP. 35x more funding available, looser restrictions, and forgiveness of qualified expenses. Anyone telling you 72 hours after this massive bill has passed that they know how this will all work out in practice (even SBA/Treasury) is just guessing.

 

[puasa1]

@michaell Thanks...I feel awful, I just directed my friend to apply using link on SBA site, but I now realize that is only for EIDL loan, not the one they forgive for rent, pay, etc...which I believe is the SBA7 loan. He already applied. I think that you have to go thru a bank for the SBA7 loan, but I suspect banks will be clueless for a few days.

Do you think there is a way to cancel to EIDL loan application so as not to lock him out of the SBA loan? Wrong loan would cost him tens of thousands. He said there was no registration required, he just got a application number, so no way to just go in and hit "cancel."