April 25, 2020

I am concerned about the barrage of “Get your FREE $10,000” that is out on the internet and here is why:

It is widely believed the EIDL Emergency advance does not have to be paid back. From the Federal Register / Vol. 85, No. 73: “Proceeds from any [Emergency] advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan”.

If a business owner takes a PPP loan for $100,000 and spends at least 75% on payroll and the other 25% on allowable uses, the $100,000 is all forgivable.

Now, let’s say this same owner received a $10,000 EIDL emergency advance. The $100,000 forgivable portion of the PPP loan is reduced by the EIDL advance of $10,000. According to the rules and regulations, the forgivable loan portion is now $90,000.  According to Section 1106 of The CARES Act, any amount not forgiven is a loan.  Therefore, the now unforgiven $10,000 is a loan, albeit, at a mere 1% interest.

One could argue the emergency advance is not being paid back but the $10,000 of the PPP is. That is a valid point and I considered that. However, the unforgiven $10,000 would not be a loan if not for taking the EIDL emergency advance. The acceptance of the emergency advance triggers a repayment, in this circumstance.  And only the forgivable part of the PPP loan is excluded from taxable gross income.

So, for the many that are proclaiming the Emergency ‘Grant’ which is actually an ‘Advance’, according to the SBA, is “free” or “never has to be repaid” can mislead a business owner who is accessing PPP and EIDL funds. Many business owners are trying to avoid creating any new debt.

Currently, there is no specific guidance on this from the U.S. Treasury Department or the Small Business Administration to the contrary.  This is my interpretation based on my exhaustive research of the PPP and EIDL programs.