How to Use the PPP and EIDL Together


Janet Berry-Johnson, CPA


Reviewed by


February 9, 2021

This article is Tax Professional approved


The SBA has two loan programs to help small businesses impacted by COVID-19: Economic Injury Disaster Loans (EIDLs) and the Paycheck Protection Program (PPP). If your business is eligible, you can get both of these loans and use the funds at the same time, as long as you don’t use them for the same purpose.

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In this article, we’ll walk you how these two programs can be used together.

Further reading: The Difference Between PPP and EIDL

What you can use the EIDL for

The definition of permitted use of EIDL funds is broad. They can be used for financial obligations and operating expenses that could have been met had the disaster not occurred.

What you can use the PPP for

For PPP loans, the definition of permitted use is much narrower—to be eligible for forgiveness, at least 60% of the loan must be used to fund payroll and employee benefit costs. The remaining 40% must be spent on:

  • Mortgage interest payments
  • Rent and lease payments
  • Utilities
  • Operations expenditures such as software and accounting needs (like Bench)
  • Property damage costs due to public disturbances not covered by insurance
  • Supplier costs such as cost of goods sold
  • Worker protection expenditures to be COVID compliant

The PPP application will ask you to certify that you’re using the funds for payroll and other eligible expenses. If you spend the funds on something outside of those categories, you could be charged for fraud.

If you spend the funds on the right things but not the right ratio (eg. you spend 60% of the funds on rent and 40% on payroll), you’ll be charged 1% interest on the funds outside of the ratio range. Unforgivable loan expenses are treated like a 5-year SBA loan—but again, “unforgivable” in this case means it’s still in the right categories, just not in the right 60/40 ratio of payroll to utilities/rent/mortgage interest.

Keep in mind there are a few other stipulations for loan forgiveness as well, such as maintaining your headcount numbers, and keeping pay rates the same.

Further reading: PPP Loan Forgiveness (A Complete Guide)

Using a PPP loan to refinance EIDL

So what happens if you get an EIDL and later apply for a PPP loan? In that case, you may need to refinance the EIDL loan with the PPP loan. Essentially, you’ll get a bigger PPP loan and use part of it to pay off your outstanding EIDL.

If the EIDL was not used for payroll costs, it doesn’t have any impact on your PPP loan. However, if you took out an EIDL before April 3, 2020, and used it for payroll expenses, you must refinance the EIDL by carrying over the EIDL balance into your PPP loan.

Let’s look at an example of how that works. To calculate your maximum PPP loan, you take:

  • The lesser of $10 million, or 2.5 times a business’s average total monthly payroll amount for calendar year 2019
  • Plus the outstanding amount of any EIDL loan made between January 31, 2020, and April 3, 2020
  • Minus any EIDL advance you received

Say Yami Yoga Studio’s average monthly payroll for the PPP loan amount calculation is $10,000 per month. At 2.5 times their payroll, the maximum loan amount would be $25,000. However, the business also received an EIDL in March of 2020, which has a balance of $15,000. The company could get a $40,000 PPP loan—that’s $25,000 plus $15,000 to pay off the existing EIDL—which is sent directly to the SBA.

When it comes time for Yami Yoga Studio to apply for forgiveness, the company needs to document how it used the proceeds of both loans in calculating the 60/40 percent ratio.

For example, say the company used $10,000 of the $15,000 EIDL to pay salaries of employees and the other $5,000 on rent and utilities.

With the remaining $25,000, Yami Yoga Studio will need to spend at least $14,000 on payroll costs to reach the 60% threshold. The remaining $11,000 can be spent on other eligible expenses.

PPP loan and EIDL advance

The EIDL allows small business owners to request an advance of up to $10,000. While the SBA refers to this as an advance, it doesn’t have to be repaid, even if your EIDL application is ultimately rejected. The advance can be used for maintaining payroll, proving sick leave to employees, rent or mortgage payments, and other obligations.

While the EIDL advance was originally deducted from PPP forgiveness amounts, this changed with the second stimulus bill released on December 27, 2020. The EIDL advance does not reduce your PPP forgiveness amount.

The role of bookkeeping

Staying on top of your bookkeeping is essential for both loan programs. Not only will it help you stay on top of what you’re using the funds for, but there are recordkeeping requirements for both loans.

The PPP requires you to track your payroll, rent/lease, utilities, and interest expenses for mortgage payments to apply for forgiveness.

The EIDL, you may need completed financial statements for the past 5 years and for every year going forward.

Don’t have a bookkeeping solution in place? Bench can help. We’ll do your bookkeeping (even retroactively) and provide you with all the financial statements you need.

More PPP resources

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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