Stubbs Alderton & Markiles attorneys Garett Hill and Kelly Siobhan Laffey have been featured in the National Law Review with their article "New Stimulus Expands the Employee Retention Tax Credit."
On December 27, 2020, President Trump signed the Consolidated Appropriations Act into law, which includes various forms of COVID-19 relief (the “New Stimulus Act”). Specifically, the New Stimulus Act includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020, effective January 1, 2021, which, among other things, amends and extends the employee retention tax credit (ERTC) and the availability of advance payments of the tax credits under the CARES Act. This article will revisit the ERTC under the CARES Act and highlight the differences of the ERTC as amended and extended by the New Stimulus Act.
To read the full article, "New Stimulus Expands the Employee Retention Tax Credit" in the National Law Review, click here.
SA&M Attorneys Published in the National Law Review
Garett Hill is an associate of the Firm. His practice focuses on all stages of business litigation.
Since joining SA&M, Garett has made significant contributions to a wide variety of litigation matters. Specifically, Garett has assisted in the successful resolutions of complex commercial arbitrations, partnership disputes, judicial dissolution actions, and breach of contract and fiduciary duty claims. Additionally, he has provided invaluable insight and advice to clients in developing areas of law, including proper worker classification and government relief programs made available to businesses during the COVID-19 pandemic.
Kelly Siobhan Laffey is Senior Counsel at Stubbs Alderton & Markiles, LLP and the Director of Business Affairs at the SA&M Preccelerator.
Kelly’s practice focuses on advising emerging growth and middle market companies in the technology, digital, internet, interactive media (i.e., AR and VR), and entertainment industries. Kelly Laffey counsels clients on issues related to corporate governance and formation, venture capital and other financings, joint ventures, employee compensation, complex stockholder and operating agreements, securities law regulation and other general corporate matters. Kelly also advises investors and funds in connection with venture capital and other financings.
Kelly also counsels clients in connection with mergers and acquisitions matters, including asset and equity acquisitions and dispositions, cross-border transactions, spin-off transactions, secured lending transactions, financing restructurings and corporate reorganizations. Drawing on her diverse work experience in the entertainment arena, including time spent with talent agencies, and music and television production companies, Kelly also assists on matters related to licensing, marketing, and exploitation of intellectual property rights.
To learn more about the employee retention tax credit, contact Kelly Siobhan Laffey at .
This article was originally published on June 4, 2020 and was most recently updated on June 17, 2020.
On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act (the “Act”) into effect, giving more time and flexibility to employers who receive or have received forgivable loans under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). On June 11, 12, and 17, 2020, the Department of Treasury , in consultation with the SBA, issued interim rules providing further guidance on how the changes from the Act will be implemented. Also on June 17, 2020, the SBA posted a revised, borrower-friendly PPP loan forgiveness application implementing the Act, as well as a simplified forgiveness application that applies to certain borrowers.
The revised PPP loan forgiveness application and related instructions implement the Act’s changes to the PPP, discussed in more detail below. Additionally, a newly introduced and simplified or “EZ” loan forgiveness application applies to borrowers that:
The EZ application requires fewer calculations and less documentation for eligible borrowers. Instructions to the new EZ application form provide additional details on its use, which define key terms, walk borrowers through the forgiveness calculations, outline eligible and non-eligible costs, and list documents that must be submitted, and retained but not submitted, in connection with the application.
Both the revised loan forgiveness application and the new EZ application give borrowers the option of using the original 8-week covered period for calculating forgiveness (if their loan was made before June 5, 2020) or a 24-week covered period.
The Act extends the period that eligible applicants may receive and spend PPP loans. The CARES Act initially defined this period as February 15, 2020 to June 30, 2020. Under the Act, PPP loans will now remain available and may be used on specified categories of borrowers’ expenses through at least December 31, 2020. (For a detailed discussion on the permitted uses of PPP loans, see our prior post.)
Perhaps more importantly, the Act also extends the time PPP recipients have to spend their funds and still be entitled to receive loan forgiveness from eight weeks after disbursement, to the earlier of 24 weeks or December 31, 2020. This change shall be effective as if included in the CARES Act, which means that it is retroactive to March 27, 2020. However, borrowers that have received their loans prior to the Act’s enactment may still elect to use their funds over the original 8-week period and the related obligation to maintain payroll levels only through June 30, 2020. Borrowers using this new loan forgiveness covered period will be obligated to maintain payroll levels for an extra 16 weeks.
Relatedly, the Act creates a new forgiveness exemption based on employee availability during the period from February 15, 2020 through December 31, 2020. Under this provision, loan forgiveness will be determined without regard to a proportional reduction in the number of full-time equivalent employees if a borrower documents in good faith both the inability to rehire individuals who were employees on February 15, 2020 and the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. This exemption also extends to borrowers whom in good faith are able to document the inability to return to the same level of business activity at which the borrower operated on or before February 15, 2020, due to compliance with regulatory standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 and promulgated between March 1, 2020 and December 31, 2020 (the Act specifically identifies guidance issued by Department of Health and Human Services, the Centers for Disease Control and Prevention, and the Occupational Safety and Health Administration).
Another significant provision from the Act lowers the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%. This means that 40% of the loan may now be spent on covered non-payroll costs (i.e., rent, mortgage interest and utilities), as opposed to the prior 25% requirement.
Given the way the Act is drafted, if a borrower did not spend 60% of funds on payroll costs during the applicable covered period (even if this amount was 59.9%) it was unclear if said borrower would be eligible for any loan forgiveness. However, the June 11 interim rule clarifies that a borrower’s failure to meet this new limit will result in a proportional reduction to forgiveness amounts, rather than serve as a threshold to receive any forgiveness.
For borrowers that apply for forgiveness within 10 months of the last day of the loan forgiveness covered period, the Act replaces the 6-month loan payment deferral period with the date on which the amount of forgiveness determined is remitted to the lender. For borrowers that fail to apply for forgiveness within 10 months of the last day of the loan forgiveness period, such recipients shall begin making payments of principal, interest, and fees at that time. Like the extension of the covered period for forgiveness purposes, this change shall also be effective as if included in the CARES Act and thus retroactive to March 27, 2020.
Further, the Act also creates a new five-year minimum maturity date (measured from the date the borrower applies for loan forgiveness) that is applicable only to PPP loans made on or after June 5, 2020 (i.e. post-enactment). For loans made before June 5, 2020, the maturity date is two years; however, the Act allows lenders and pre-enactment borrowers to mutually agree on modifying the maturity terms to conform with this change.
Lastly, the Act now permits borrowers whose loans were forgiven in whole or in part to delay the payment of employer payroll taxes until December 31, 2021 (with respect to up to 50% of the amounts due) and December 31, 2022 (with respect to the remaining amounts due up to 50%). Borrowers who received forgiveness were previously prohibited from taking advantage of this benefit.
We will continue to closely monitor developments regarding these matters. You can view prior alerts and additional guidance regarding COVID-19-related matters at our resource center.
For more information on these matters, please contact our COVID-19 Task Force at or one of our attorneys at SA&M.
May 29, 2020 marks 8 weeks since Paycheck Protection Program (PPP) loans were first made available and thus the beginning of borrowers’ eligibility to apply for loan forgiveness. On May 22, 2020, the SBA released two rules to help clarify various aspects of loan forgiveness and inform on the SBA’s review process, discussed below.
Loan Forgiveness Process: Lenders determine loan forgiveness on a borrower-by-borrower basis. To receive loan forgiveness, borrowers must complete and submit the Loan Forgiveness Application (or a lender’s equivalent) to their lenders. Lenders have 60 days from the date the Loan Forgiveness Application is submitted to issue its decision to the SBA, which in turn has 90 days to remit the appropriate forgiveness amount to the lender. (For a more detailed discussion on what costs qualify as forgivable, see our prior post here.)
Alternative Payroll Covered Period: Borrowers are not required to base forgiveness amounts on the 8-week period that begins with the date of disbursement. Instead, borrowers may opt to use an 8-week period beginning on the first day of the first payroll cycle after loan funds are disbursed (the “alternative payroll covered period”). For example, if a borrower receives its PPP disbursement on June 1, but the borrower’s first pay cycle after disbursement begins on June 7, the borrower may elect to calculate its loan forgiveness amount by using the period from June 7 to August 1 (8 weeks after June 7).
Costs Incurred but not Paid During Covered (or Alternative Covered) Payroll Period: Payroll costs incurred during the borrower’s last pay period of the covered period (or alternative payroll covered period) are eligible for forgiveness if paid on or before the next regular payroll date; otherwise, payroll costs must be paid during the covered period (or alternative payroll covered period) to be eligible for forgiveness. Additionally, non-payroll costs that are otherwise eligible for forgiveness and are incurred within the covered period or alternative covered period and paid on or before the next regular billing date are also eligible for forgiveness. For example, a rent or utility payment paid after the designated 8-week covered period can still qualify for loan forgiveness to the extent the payments were for rent or utilities incurred during said period. However, advance payments for interest on mortgage obligations do not qualify for forgiveness.
Payroll Caps: Payroll costs are forgivable to the extent that they cover employees’ salary, wages, or commissions during the covered or alternative covered period and do not exceed a prorated annual salary of $100,000. This also applies to bonuses, hazard pay, and the salary, wages, or commissions paid to furloughed employees. Further, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses.
Reductions to Loan Forgiveness Amounts: The CARES Act provides that a borrower’s loan forgiveness amount will be reduced if a borrower reduces its full-time equivalent (FTE) employees (meaning 40 hours or more of work each week) or reduces any employees’ (who made less than $100,000 in 2019) salary or wages by more than 25%. The CARES Act also allows borrowers to avoid such reductions if employees are rehired and restored salary and wage levels by June 30, 2020. The May 22nd interim rules clarify that borrowers may still be entitled to avoid such forgiveness reductions so long as they offer to rehire FTE employees or restore employees’ hours, even if they do not accept. Such offers must be made in good faith and be for the same salary, wages, and number of hours that the employee earned prior to separation or reduction in hours. Records of these offers and rejections must also be maintained, and the borrower must inform the applicable state unemployment insurance offer within 30 days of the employee’s rejection. Moreover, to ensure that borrowers are not doubly penalized, salary/wage reductions apply only to the portion of the decline in employee salary and wages that are not attributable to an FTE employee reduction. Further, if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction, then no corresponding loan forgiveness reduction will be imposed.
SBA’s Review Process: As discussed in our prior post addressing borrowers’ potential liability under the False Claims Act, all PPP loans in excess of $2 million, and any other loans “as appropriate,” will be reviewed by the SBA. Either way, if the SBA reviews a borrower’s loan, it will look at borrower eligibility, loan amounts and use of proceeds, and loan forgiveness. Borrowers are required to maintain PPP documentation for six years after the date the loan is forgiven or repaid in full and must permit the SBA access to such files upon request. If the SBA believes that a borrower may not have been eligible for the loan, the loan amount, or the loan forgiveness amount, the SBA will require the lender to contact the borrower in writing to request additional information and may also request information directly from the borrower. If the SBA determines that a PPP loan recipient should have been ineligible, no forgiveness will be permitted. The SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies. Another interim rule will be issued that addresses how recipients ruled ineligible can appeal such a determination.
Modifications Expected: On May 28, 2020, the U.S. House of Representatives approved legislation (the “Paycheck Protection Flexibility Act,” H.R. 7010), that would extend the time PPP recipients have to spend their funds and receive forgiveness from eight weeks to 24 weeks. The bill would also lower the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%. The House bill passed under special rules established to expedite legislation while the House is not in full session, requiring a two-thirds vote for passage instead of a simple majority. The House bill will now need to pass the Senate before making its way to President Trump’s desk to be signed into effect. A separate bill advancing through the Senate would double the covered period of forgivable PPP spending to 16 weeks but would not change the 75% payroll cost requirement. We will continue to track these bills and provide updates accordingly.
We will continue to closely monitor developments regarding these matters. You can view prior alerts and additional guidance regarding COVID-19-related matters at our resource center.
For more information on these matters, please contact our COVID-19 Task Force at or one of our attorneys at SA&M.
Authors:
Caroline Cherkassky
Garett Hill
To assist small businesses in the wake of the COVID-19 pandemic, Congress established the Paycheck Protection Program (“PPP”) under the CARES Act, with $700 billion in Small Business Administration (“SBA”) loans to small businesses intended to pay for payroll, rent and other expenses. To be eligible, a business is required to complete a short, 4-page PPP Borrower Application Form (“Application”). For many businesses in a rush for funds and eager to submit the Application before program funding was depleted, completing the Application could have been accomplished relatively quickly, with basic information about the business, signing the Application, and certifying, among other statements, that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” After the launch of the PPP, the SBA has released a series of FAQs, which have provided additional clarity and, at times, additional confusion, regarding, among other issues, the question of “necessity”. As a result, each small business that received PPP funds must ask: What does “necessary” mean, and what if the PPP funds were not “necessary”?
Those small businesses looking for a precise definition of “necessary”/”not necessary” may be looking for the foreseeable future because the federal government has not defined the meaning of “necessary”, though the SBA has provided some guidance in FAQs 31 and 37 (and has indicated in FAQ 43 that it intends to issue additional guidance on this question before May 14, 2020). We explore the question of necessity in greater detail in "SBA Guidelines Regarding Necessity."
Unfortunately for many small businesses and individual directors and officers, the answer to the second question (i.e., what if the PPP funds were not “necessary”?) is much clearer, and not for the better. Each business that received PPP funding (as well as those directors, officers, and/or employees who were involved in preparing and submitting the Application) could face liability under The False Claims Act (31 U.S.C. §§ 3729 - 3733), which is longstanding federal legislation that imposes liability upon any “person” (which includes any corporation, partnership, limited liability company, or any other entity, as well as any director, officer, employer, or independent contractor) who/that “knowingly” submits a materially false or fraudulent claim for payment to the federal government. A “person” acts “knowingly” under The False Claims Act when that person “has actual knowledge of the information”, “acts in deliberate ignorance of the truth or falsity of the information”, or “acts in reckless disregard of the truth or falsity of the information”.
This means that every director/officer who “knowingly” participated in preparing and submitting an Application that contained materially false or fraudulent information could face liability under The False Claims Act.
As a practical matter, to avoid liability under The False Claims Act, the director/officer would need to establish, at a bare minimum, that he/she acted reasonably and in good faith in assisting with the Application, and that he/she was not reasonably aware of any materially false or fraudulent information in the Application. Stated alternatively, liability could extend to those directors/officers who did not make (or chose not to make) a reasonable and prudent inquiry into the possibility that the Application contained materially false or fraudulent information.
Directors/officers could also face liability for relying on analysis/information from an expert or specialist (including an accountant) regarding the necessity of the PPP funds if the expert’s analysis/information turned out to be materially false or fraudulent. In such situations, directors/officers could face liability if they failed to either provide the expert with (or access to) the relevant documents and/or reasonably rely on the expert’s analysis.
Further, individual directors/officers (as well as businesses) should also note that The False Claims Act applies to “implied certifications”, which are statements that are rendered misleading or deceptive because they omit material information (commonly referred to as “half-truths”). This would include a business’s failure to disclose that it violated a regulation, statute, or law that would affect its eligibility to operate in good standing and/or receive PPP funds.
While the issue of individual director/officer liability is fact-specific and requires analysis of the specific circumstances, each person who was involved in the Application process must scrutinize the extent and nature of his/her involvement, and understand that “pointing the finger” is not a valid defense under The False Claims Act. In analyzing their prospective liability, those participating individual directors/officers should consider whether they sought to independently confirm the accuracy of the information in the Application; whether they had an opportunity to independently verify the materially false or fraudulent information; whether they appropriately supervised the Application process; and whether, with due diligence, they could have spotted the materially false or fraudulent information in the Application.
To enforce The False Claims Act, the U.S. Department of Justice (“DOJ”) can file a lawsuit against any “person” in violation. Commonly in False Claims Act enforcement, lawsuits are filed by a “relator” – that is, any person, including an ordinary citizen or a whistleblower, who is the “first to file” a lawsuit and who has original evidence that the alleged violating business or individual director/officer violated The False Claims Act. Relator status is subject to specific filing and service procedures, as set forth in 31 U.S.C. § 3730. Further, after the relator files the lawsuit, the DOJ has the discretion to stand in the shoes of the relator to prosecute the lawsuit as the original plaintiff. Alternatively, if the DOJ chooses not to intervene, it can seek dismissal of the lawsuit over the relator’s objection, or seek to stay discovery if the lawsuit would interfere with the federal government’s investigation or prosecution of a related criminal or civil matter.
If a court determines that a defendant business, director, officer, or other person violated The False Claims Act, then, pursuant to 31 U.S.C. §§ 3729 - 3730, each such defendant faces liability for 2 to 3 times the amount of damages that the federal government sustained (which would likely consist primarily of the amount of the loan, especially if forgiven), in addition to a civil penalty in an amount between $11,181 and $22,363 (as set forth in 28 C.F.R. § 85.5), the costs of litigation, and the relator’s reasonable attorneys’ fees and costs as the prevailing party (if applicable). This is in addition to potential criminal liability.
For those businesses and individual directors/officers concerned with potential liability under The False Claims Act, it is critical that they act immediately. Businesses that repay the loan in full by May 14, 2020, “will be deemed by SBA to have made the required certification in good faith.” This means that, as long as the PPP funds are fully returned by May 14, the business and officers/directors will not face liability under The False Claims Act (or other civil or criminal liability arising from the act of submitting an Application that contained materially false or fraudulent information). Even if the PPP funds are not returned by May 14, the business and individual directors/officers should still take immediate efforts to return those funds that were not “necessary”— as the timing of repayment could constitute a mitigating factor that could potentially reduce damages and penalties if a False Claims Act lawsuit is filed.
Even for those businesses and directors/officers that have experience litigating corporate governance or related business disputes, an action under The False Claims Act is not your average lawsuit. For example, under the business judgment rule – which is a common defense in litigation by shareholders involving corporate governance and business disputes in Delaware and California corporations – directors and officers who act in their representative capacity are presumed to have acted in good faith and reasonably in most circumstances. Under The False Claims Act, however, the federal government – and not the shareholder or member – suffers the harm. As a result, the business judgment rule is unlikely to provide comfort to directors/officers in claims involving The False Claims Act.
Moreover, in analyzing potential liability or litigation under The False Claims Act, businesses and directors/officers should also look into potential insurance coverage under any applicable D&O, errors and omissions, or related insurance policy/coverage. For these reasons, in addition to other issues that are unique to The False Claims Act, any business or individual concerned with potential liability or litigation should immediately consult with an attorney.
The federal government has made clear that it is committed to ensuring that only those eligible businesses received PPP funds. More specifically, in FAQ 39, the SBA explained: “To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.” Further, as announced on April 20, 2020, the Senate Committee on Small Business and Entrepreneurship intends to “conduct aggressive oversight of the Paycheck Protection Program (PPP), including whether companies made false certifications to the federal government to receive PPP loans.” While the definition of “necessary” might not be certain, one thing is certain — there will be many False Claims Act proceedings linked to the PPP program, in the years to come.
Stubbs Alderton & Markiles litigators have experience in handling False Claim Act/Qui Tam investigations and litigation and have litigated such claims in the U.S. District Court, the U.S. Court of Appeal for the Ninth Circuit and in California state court. Firm litigators have extensive experience in corporate governance disputes and in advising boards of directors and board committees. For further information and follow-up on this article, contact our business litigation chair Michael Sherman, or SA&M attorneys Caroline Cherkassky, Dan Rozansky, or Neil Elan.
Making payroll is one of the most stressful issues on every business owner’s mind, and thankfully, the Paycheck Protection Program (PPP) section of the CARES Act provides significant aid to provide some financial relief. The final PPP loan application is now available here.
Who Can Apply? According to the Dept of Treasury’s Information Sheet, all businesses with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards. Business types that qualify for PPP loans include independent contractors, LLCs, S corporations, C corporations, sole proprietorships, as well as other types of businesses including certain nonprofits, veterans’ organizations, and tribal business concerns. Businesses who have received Economic Injury Disaster Loans (EIDLs) through the SBA between January 31, 2020 and April 3, 2020 are not prohibited from obtaining a PPP loan so long as the EIDL was executed for purposes other than the permitted uses of a PPP (see below for discussion of PPP permitted uses).
The SBA’s affiliation standards have been waived for this Program for companies that are (a) in the hotel or food services industries; (b) franchises in the SBA's Franchise Directory; and (c) receiving financial assistance from small-business investment companies licensed by the SBA. The affiliation standards have been the source of much confusion in the venture-backed startup community; and we explore those considerations in more detail here and will be monitoring for expected new guidance in that area and updating as that becomes available.
What Do I Need to Do to Apply? A business owner must apply through an approved SBA 7(a) Lender, or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Applications are open as of April 3, 2020 for small businesses and sole proprietors. Independent contractors can begin the application process as of April 10, 2020. All applications must be submitted to an approved lender by June 30, 2020.
Applicants will need to certify that the business is suffering from economic hardship due to the current COVID-19. In addition to the certification in good faith that the funds will be used to maintain payroll and make mortgage, lease or utility payments, the applicant will need to provide:
How Much Can You Apply For? The amount of the loan is for up to 2.5 times a business’s average monthly payroll costs from the last year plus any outstanding amounts owed on an EIDL executed between January 31, 2020 and April 3, 2020, if any, and less any emergency advance amounts obtained through the EIDL program, if any. Note, this amount cannot exceed $10 million. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Individual employee payroll costs are capped at $100,000 annualized, so anything above that is not considered for determining average payroll costs.
What Are the Permitted Uses of a PPP? A PPP loan can be used for “payroll costs” and other specific operating expenses.
Payroll costs include salary, wages, commissions, payment of vacation, sick, parental/family/medical leave, payment of retirement contributions, group health coverage premiums and state and local taxes assessed on payroll. Payroll costs do not include Federal Payroll Tax, compensation paid to employees in excess of $100,000, or compensation paid to employees outside the U.S.
In addition to payroll costs, PPP loans can be used to cover interest on mortgage obligations, rent, and utilities that were in use before February 15, 2020, and interest on other debt obligations incurred before February 15, 2020.
Loan Terms. PPP loans will be executed at an interest rate of 1% with a maturity date of two years.
When Do I Have to Pay it Back? A business’s loan repayment term is two years, with the first 6 months of payments deferred with interest accruing during deferment. There is no pre-payment penalty if paid back within that two-year period.
Is the Loan Forgivable? A business owner is eligible for loan forgiveness for the amounts they spend over the eight weeks after receiving the loan disbursement on the qualifying expenses named above (aside from interest on debt obligations incurred before February 15, 2020), provided that at least 75% of the forgiven amount must have been used for payroll costs.
If the number of full-time employees is reduced over the eight weeks or if the salary or wages of employees who earned $100,000 or less in 2019 are reduced by 25% or more, then the amount of the loan eligible for forgiveness will be reduced. However, depending on the timing of any such workforce or salary/wage reductions, reduced loan forgiveness can be avoided if the reductions are undone by June 30, 2020.
The lending bank will determine a business’s eligibility for loan forgiveness based on the criteria mentioned and has 60 days to render a decision.
Can I Still Qualify if I Already Have an SBA Loan? A business owner can have more than one SBA loan as long as the total combined amount of the loans does not exceed the maximum amount set by the SBA, and in the case of EIDL and PPP loans, a borrower cannot take out both types of loans unless they are for different purposes. EIDL loans executed before a PPP loan can be rolled into a PPP loan. In other words, the principal of an EIDL could later become part of a PPP loan, likely resulting in lower interest rates.
What are the similarities and differences between PPP loans and EIDL? Can I get both? As mentioned, you can receive both loans as long as the amount doesn’t exceed the maximum amount allowed by the SBA, and the proceeds are used for different things. EIDL can be used for payroll, paid sick leave, costs incurred due to supply chain disruption, rent or mortgage payments, and repayment of amounts owed that cannot be paid due to loss of revenue from a disaster’s (i.e. COVID-19) impact. Further, EIDL applicants can receive up to a $10,000 emergency advance, which does not have to be repaid even if the loan application is later denied but will reduce the principal of a PPP loan if such applicant subsequently executes one.
As addressed above, PPP can be used for payroll costs, group health care benefits, mortgage interest costs, rent, utilities and interest on debt incurred before February 15, 2020. Because the PPP is forgivable in certain cases, and forgiveness is tied to usage of the PPP loan on payroll specifically, borrowers should carefully evaluate which loan to use for which expenses where an expense is eligible to be paid by either type of loan. We have provided a useful flow chart, available at: PPE: EIDL Comparison Chart.
Authors:
Heidi Hubbeling
Garett Hill
Caroline Cherkassky
Greg Akselrud
For more information on PPP, EIDL and other SBA benefits, please contact us at