Why you might not be eligible for PPP loan forgiveness

Written by Bethany Wood | Wed, Aug 19, 2020

The coverage of the Paycheck Protection Program and PPP forgiveness has been so vast that many of the additional loans, grants, and other aid given since Coronavirus shutdowns began in March have been brushed to the side. With such a focus on the forgiveness of PPP loans, many loan recipients who received additional government aid may be in for a shock when they determine their forgiveness amount.

Those who received both an EIDL Advance and a PPP loan are not eligible for full forgiveness. The PPP forgiveness total will be reduced by the amount of your EIDL grant, according to page 10 of the SBA’s Frequently Asked Questions released on August 11^th.

This also concludes, and is indicated on Page 11 of the FAQ, that borrowers whose EIDL Advances were larger than the sum of their PPP loan are not eligible for forgiveness.²

Between the CARES and HEROES acts earlier this year, the government has created many different programs to help small businesses survive. First among these was an emergency grant program that gave grants (EIDL Advance) up to $10,000 ($1,000 for each employee, maxing out at $10,000) to business owners who applied for an Economic Injury Disaster Loan (EIDL).

Perhaps one of the most advantageous aspects of the PPP loans is that they are forgivable to those that spend at least 60 percent of the funds on payroll expenses, still offering partial forgiveness to those that do not meet the payroll requirement.

Many lenders, CPAs, and other financial advisors warned against obtaining more than one of these loans and recommended choosing one or the other, and have worked to ensure their clients are prepared for what is to come and that they will have to make that repayment.¹

However, many borrowers don’t feel the full weight until the time comes to repay, and experts concede that this repayment amount will still come as a shock to many borrowers once the official forgiveness application is finalized.¹

On the bright side, the borrowing terms for the non-forgiven portion of PPP loans are still very favorable—1 percent interest rate, a six-month grace period before repayments begin, and a two-year repayment period (for loans issued before Jun 5) and five years for loans issued after June 5.¹

These programs are brand new and were created in a state of emergency. Undoubtedly, the kinks are still being worked out and the public continues to find faults as we navigate through the life of these loans. Lenders have only been permitted to accept loan forgiveness starting this past week.

With Congress back in recess until Labor Day, we cannot be sure if there will be changes or answers to the many questions and concerns still looming, or if the next relief bill will affect the program or forgiveness process at all.

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