No Need to Panic—Borrowers Can Get PPP and EIDL Loans

Apr 6, 2020

No Need to Panic—Borrowers Can Get PPP and EIDL Loans

Over the past weekend, there has been great concern that the SBA’s “Interim Final Rule” from April 2 prohibits borrowers who receive EIDL loan funds after April 3 from applying for a PPP loan. We disagree with this interpretation.


The confusion stems from the SBA’s requirement that PPP loans be used primarily for payroll and EIDL loans be used for other purposes if the borrower is also getting a PPP. If a borrower obtained an EIDL before April 3 (the start of the PPP program), then SBA is concerned about how those funds are going to be used.


If the EIDL was obtained before April 3 to cover payroll costs, then it has to be refinanced into the PPP, which carries a lower, 1%, interest rate but a much shorter, 2-year, maturity than the EIDL’s 3.75% interest rate and 30-year maturity. This does not mean that if you obtain an EIDL loan after April 3, that you cannot also get a PPP loan. The Interim Final Rule does not say that.


If the EIDL was obtained before April 3 for non-payroll costs, that is still permitted. If it is obtained after April 3, that is permitted as well, but if you also get a PPP loan, then the post-April 3 EIDL should not be used for payroll.


The borrower should document how the EIDL money is spent, making sure it is not spent on payroll. It can be spent on other operating expenses (e.g., supplies, lab, rent, marketing, working capital—just not payroll). This will be easier to do if the EIDL is in a separate bank account, though that is not required.


If you are applying for both, you can accept the PPP first—then decide whether to close on your EIDL approved loan. The PPPs are made through the banks and will be done quickly. EIDLs are through the SBA and will take much longer. An EIDL approved loan may be closed within 60 days, and the borrower can choose whether to close on the loan. The EIDL application period runs through December 2020.

Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our subscribers and website visitors updated on current events during this extraordinary time.

We will work diligently to answer general inquiries via our website if time permits and in a little more detail within our Newsletters. However, if your questions are detailed in nature, please request to set up a conference call for a formal legal consultation. Thank you.


Collier & Associates, Inc. provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.


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