The SBA added a new “Economic Injury Disaster Loan (EIDL) FAQs” section to the PPP Loan Forgiveness FAQ on August 11, 2020.[1] The FAQs are the first significant guidance issued on the interaction of EIDL advances and PPP loans.

Under the CARES Act a business that receives an EIDL advance and a PPP loan will have its PPP loan forgiveness reduced by the amount of the EIDL advance.

SBA Notification of Lender of Amount of PPP Forgiveness Reduction Due to EIDL Advance

The first question outlines how the lender will be notified of the amount of the reduction of the PPP loan forgiveness due to the EIDL advance:

1. Question: SBA will deduct the amount of any Economic Injury Disaster Loan (EIDL) advance received by a PPP borrower from the forgiveness amount remitted to the lender. How will a lender know the amount of the EIDL advance that will be automatically deducted by SBA?

Answer: If a borrower received an EIDL advance, SBA is required to reduce the borrower’s loan forgiveness amount by the amount of the EIDL advance. SBA will deduct the amount of the EIDL advance from the forgiveness amount remitted by SBA to the lender. The lender will be able to confirm the amount of the EIDL advance that will be automatically deducted by SBA from the forgiveness payment by reviewing the borrower’s EIDL advance information in the PPP Forgiveness Platform.[2]

Treatment of Remaining Balance on PPP Loan

The second question outlines the treatment of the remaining balance of the PPP loan after the reduction of forgiveness for the EIDL advance:

2. Question: How should a lender handle any remaining balance due on a PPP loan after SBA remits the forgiveness amount to the lender?

Answer: If a PPP loan is not forgiven in full (including if there has been a reduction in the forgiveness amount for an EIDL advance), any remaining balance due on the PPP loan must be repaid by the borrower. The lender is responsible for notifying the borrower of the loan forgiveness amount remitted by SBA and the date on which the borrower’s first loan payment is due. The lender must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years). If a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other available remedies.[3]

EIDL Advance Amount in Excess of PPP Loan

In the case where a borrower received a PPP loan that was less than the EIDL advance amount, there would be no loan forgiveness on the PPP loan.  Question 3 provides:

3. Question: What should a lender do if a borrower received an EIDL advance in excess of the amount of its PPP loan?

Answer: A borrower that received an EIDL advance in excess of the amount of its PPP loan will not receive any forgiveness on the PPP loan, because the amount of an EIDL advance is deducted from the PPP loan forgiveness amount. The lender is responsible for notifying the borrower of the date on which the borrower’s first loan payment is due. The lender must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years). If a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other available remedies.[4]

[1] Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, Small Business Administration, August 11, 2020 Revision, https://home.treasury.gov/system/files/136/PPP--Loan-Forgiveness-FAQs.pdf (retrieved August 12, 2020)

[2] Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, Small Business Administration, August 11, 2020 Revision, Economic Injury Disaster Loan (EIDL) FAQs, Question 1

[3] Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, Small Business Administration, August 11, 2020 Revision, Economic Injury Disaster Loan (EIDL) FAQs, Question 2

[4] Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, Small Business Administration, August 11, 2020 Revision, Economic Injury Disaster Loan (EIDL) FAQs, Question 3