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Should You Apply for Loan Forgiveness for Your PPP Loan or EIDL Advance?


The Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) are emergency measures to help small businesses stay solvent during the COVID-19 pandemic. When both initiatives were created, we were optimistic that the worst of the COVID-19 pandemic would be over by the end of the summer. Now that schools in the Washington DC area will be operating online for at least the first few months of the school year, it is obvious that the prediction has not come true. Both initiatives come with an opportunity for forgiveness of at least part of the loan, and the application period for PPP loan forgiveness has just begun. Of course, applying for loan forgiveness might create more problems than it solves. A Washington DC small business lawyer can advise you on what to do next if you have received PPP or EIDL money.

There Is No Such Thing as a Freebie

Every businessperson knows that you have to give something to get something in return. The PPP and EIDL loans, even when recipients do not apply for loan forgiveness, come with lenient conditions for repayment. PPP loans have an interest rate of only one percent. The deadline for repayment of the loan amount (minus any amount that gets forgiven, of course) is two years for loans issued before June 5, 2020 and five years for loans issued after that date. The grace period for PPP loans is six months. Meanwhile EIDL loans have an interest rate of 3.75 percent, which is higher than PPP loans but still much lower than pre-pandemic interest rates. Businesses that borrowed EIDL loans can still make low monthly payments, though, because the term of the loan is 30 years.

For PPP loan recipients, the promise of loan forgiveness has been something of a Trojan horse. Borrowers are eligible for loan forgiveness if they used at least 60 percent of the loan money on payroll; if they used less than that amount, they may still be able to get part of the loan amount forgiven. The catch is that the company cannot deduct business expenses it paid for with PPP loan money on its next income tax return.

Meanwhile, EIDL loan recipients had the opportunity to receive an advance on their loan money, and the amount disbursed as an advance counted as a grant and did not need to be repaid. Borrowers could receive up to $1,000 per employee as an advance, and independent contractors could receive $1,000. Of course, this grant also comes with a catch. If an EIDL advance grant recipient also received a PPP loan and then applied for loan forgiveness, the amount of the EIDL grant will be subtracted from the PPP amount eligible for forgiveness. For example, if you got $50,000 as a PPP loan and $10,000 as an EIDL grant, then, assuming that your whole PPP loan would otherwise be eligible for forgiveness, then you can only get $40,000 of your PPP loan forgiven.

Reach Out to Us Today for Help

A Washington DC small business lawyer can help you decide which loan forgiveness option, if any, is best for your small business. Contact Tobin, O’Connor & Ewing for more information about how we can help.




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