Update November 6, 2020
This year, small businesses have heard a lot about two programs managed by the Small Business Administration (SBA): 1) the Economic Injury Disaster Loan program (aka EIDL) and 2) the Paycheck Protection Program (PPP). EIDL has been around for years whereas PPP started with the passage of the CARES Act. The CARES Act expanded the EIDL program by providing an advance of funds up to $10,000 to applicants, this is known as the EIDL Advance. Many small business owners along with the lending institutions processing PPP applications found it difficult to understand how these programs related to each other and most questions were not answered until months after businesses had applied and received funding. The fact that the Advance was part of the EDIL application has also added to the confusion. We will try to clear up some of that here:
A large loan meant to replace lost revenues for small businesses. Receiving this loan involved working directly with the SBA and signing a loan agreement with either 15 or 30-year repayment terms. Loan amounts were typically not whole numbers and were much larger than the EIDL Advance. EIDL loans were distributed directly by the SBA and were not administered by DreamSpring or other lenders. This loan is not forgivable at this time.
EIDL Advance (also known as the EIDL grant):
A $1,000-$10,000 payment that came directly from the SBA to small business owners. The EIDL Application included a box that allowed a borrower to check “I would like to be considered for an advance of up to $10,000”. Borrowers that checked this box were considered for the EIDL AdvanceMost borrowers received a deposit in their bank account in the amount of $1,000 per employee as listed on the EIDL loan application without any supplemental notification from the Small Business Administration (SBA) regarding the terms or conditions of the grant. Some SBA materials and webinars referred to the EIDL Advance as a grant. These terms were used interchangeably by the SBA.
Paycheck Protection Program Loan:
A loan distributed by DreamSpring and other SBA lenders. This loan product was meant to primarily cover payroll expenses and was calculated based on the payroll expenses from the 2019 business tax return or payroll records. These loans are forgivable if the funds were used for payroll and other eligible expenses.
In June of 2020, the SBA announced how applying for forgiveness of a PPP loan would work and mentioned that receiving an EIDL Advance would have an impact on how the amount of forgiveness was calculated.
The guidance specified that EIDL Advances would be subtracted from PPP forgiveness calculations. What they did not clarify was when in the calculation process this reduction would occur. If the reduction happened prior to the forgiveness decision, it was possible that business owners showing enough eligible expenses to cover their PPP loan and EIDL Advance would have their PPP loan fully forgiven.
In August of 2020, when the SBA began accepting (but not processing) forgiveness applications, they notified lenders that the reduction of the EIDL Advance would occur after the final forgiveness calculation was completed. The implication of this being that all businesses who had received an EIDL Advance would be left with a small PPP loan balance regardless of the amount of expenses shown on their forgiveness application.
The EIDL Advance instructions on the original EIDL application clearly specified that the borrower would not be responsible to repay their EIDL Advance under any circumstances and gave no indication that the advance would impact other eligibility and programs. The SBA has explained that with EIDL Advance being deduced from forgiveness, borrowers are not being required to repay their EIDL Advance. Rather, a borrower who has a PPP loan balance due to an EIDL Advance deduction is being asked to repay a portion of their PPP Loan that was not eligible for forgiveness.
We understand that the EIDL Advance deduction is burdensome for many businesses. As a non-profit focused on providing support for small business owners, DreamSpring will continue to advocate that the SBA change the forgiveness process and remove the EIDL Advance deduction from the forgiveness calculation.
Changes to the forgiveness process were actively pursued within the Small Business Administration in August and September, discussions slowed in October and may resume in the coming months. We have been told that revisions to the EIDL Advance deduction have also been included in some drafts of the SBA’s ‘blanket forgiveness’ proposals. Changes are still possible in the coming months and we will continue to keep you informed of any updates to PPP Forgiveness.