EIDL vs PPP: Understanding the Key Differences Between These SBA Programs

When the COVID-19 pandemic disrupted businesses nationwide, the U.S. Small Business Administration launched two major relief programs: the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP). While both aimed to help small businesses survive the economic crisis, they took fundamentally different approaches—and understanding these differences remains crucial for business owners managing existing loans or evaluating future disaster relief options.

Whether you're still repaying an EIDL, reconciling PPP forgiveness, or simply want to understand these programs for future reference, this comprehensive guide breaks down everything you need to know about EIDL vs PPP.

What is an EIDL?

The Economic Injury Disaster Loan (EIDL) is a long-standing SBA program designed to help small businesses recover from declared disasters. During COVID-19, the SBA expanded this program dramatically to provide working capital loans to businesses experiencing substantial economic injury.

Key characteristics:

• Direct loans from the SBA (not through banks)
• Maximum loan amount up to $2 million
• 30-year repayment term
• Low fixed interest rate: 3.75% for businesses, 2.75% for nonprofits
• Included an advance grant of up to $10,000 (not required to be repaid)
• Funds can be used for various operating expenses

The EIDL program operates like a traditional loan—you borrow money and must repay it over time, though the terms are exceptionally generous compared to commercial financing.

What is PPP?

The Paycheck Protection Program (PPP) was a brand-new initiative created specifically for the pandemic through the CARES Act. Unlike EIDL, the PPP was designed with loan forgiveness as a central feature, essentially functioning as a grant for businesses that met specific criteria.

Key characteristics:

• Administered through SBA-approved lenders (banks and credit unions)
• Maximum loan amount up to $10 million
• Based on 2.5x average monthly payroll
• 1% fixed interest rate
• 2-year term initially, later extended to 5 years for new loans
• Fully forgivable if funds used appropriately
• Focused primarily on payroll protection

The PPP's forgiveness feature made it particularly attractive—businesses could receive substantial funding without creating long-term debt, provided they followed the program rules.

EIDL vs PPP: Side-by-Side Comparison

Understanding the differences becomes clearer when you see them side by side:

Loan Amount and Terms

Feature	EIDL	PPP
Maximum Amount	$2 million	$10 million
Interest Rate	3.75% (business) / 2.75% (nonprofit)	1%
Repayment Term	Up to 30 years	2-5 years
Calculation Method	Based on economic injury	2.5x average monthly payroll
Collateral	Required for loans over $25,000	None required
Personal Guarantee	Required for loans over $200,000	None required

Forgiveness

PPP: Fully forgivable if at least 60% of funds are spent on payroll costs and the remaining 40% on approved expenses (rent, mortgage interest, utilities). Businesses must maintain employee headcount and wage levels to receive full forgiveness.

EIDL: Not forgivable—these are traditional loans that must be repaid in full. The only exception was the EIDL advance grant (up to $10,000), which did not require repayment.

Eligible Uses

PPP permitted expenses:

• Payroll costs (must be at least 60% of total)
• Mortgage interest (not principal)
• Rent or lease payments
• Utilities
• Covered operations expenditures
• Property damage costs
• Supplier costs
• Worker protection expenditures

EIDL permitted uses:

• Payroll expenses
• Fixed debts (rent, utilities, mortgage interest)
• Accounts payable
• Continuation of health benefits
• Other operating expenses necessary to carry the business until normal operations resume

EIDL prohibited uses:

• Refinancing existing debt
• Expanding facilities or purchasing fixed assets
• Repairing physical disaster damage
• Paying dividends or bonuses
• Disbursing funds to owners or stockholders

The key difference: PPP had strict spending requirements tied to forgiveness, while EIDL offered more flexibility but required full repayment.

Eligibility Requirements

EIDL Eligibility

To qualify for an EIDL, businesses needed to:

• Be a small business, agricultural cooperative, or private nonprofit organization
• Be located in a declared disaster area
• Have suffered substantial economic injury (unable to meet obligations or pay operating expenses)
• Be in operation when the disaster began
• Have used all reasonably available funds
• Not be able to obtain credit elsewhere (for some programs)
• Not be delinquent on existing SBA loans or federal debt

PPP Eligibility

PPP eligibility was broader:

• Businesses with 500 or fewer employees (some industry exceptions)
• Self-employed individuals
• Independent contractors
• Sole proprietors
• Nonprofits, veterans organizations, tribal businesses
• Required active payroll with employment or self-employment taxes
• Owner draws and 1099 contractors didn't qualify for payroll calculations

Notably, the PPP had fewer credit history requirements and was more accessible to newer businesses and those with limited operating history.

Application Process

How to Apply for EIDL

The EIDL application process was:

1. Apply directly through the SBA website
2. Provide business financial information and tax returns
3. Demonstrate economic injury
4. SBA reviews application and performs credit check
5. Loan approval and disbursement directly from SBA
6. Collateral and personal guarantee documentation for larger loans

Timeline: Processing times varied significantly, with some applications taking weeks or months during peak demand.

How to Apply for PPP

The PPP application process was:

1. Choose an SBA-approved lender (existing banking relationships often helped)
2. Gather payroll documentation and tax forms
3. Calculate loan amount based on average monthly payroll
4. Submit application through the lender
5. Lender approves and SBA provides loan number
6. Funds disbursed through the lender

Timeline: Generally faster than EIDL, especially through established bank relationships. Many businesses received funds within days or weeks.

Can You Get Both EIDL and PPP?

Yes—and many businesses did exactly that. The programs were designed to be complementary, though with important restrictions:

You cannot use both loans for the same expenses. For example, if you use PPP funds for payroll in March, you cannot also use EIDL funds for March payroll. However, you could:

• Use PPP funds for payroll
• Use EIDL funds for rent, utilities, and accounts payable
• Use EIDL funds for payroll in different time periods

The EIDL advance grant affected PPP forgiveness: If you received the EIDL advance grant (up to $10,000), that amount was deducted from your PPP forgiveness amount dollar-for-dollar, though this rule was later changed.

Strategic businesses maximized both programs by carefully allocating expenses—PPP for payroll (to maximize forgiveness) and EIDL for other operational costs.

Which Program Was Better for Your Business?

The answer depended entirely on your business model and needs:

Choose PPP if you:

• Had significant payroll expenses
• Wanted potential loan forgiveness
• Needed funds quickly
• Could maintain employee headcount and wages
• Preferred not to take on long-term debt

Best for: Businesses with employees, service companies, and those hit hard by temporary shutdowns who planned to retain staff.

Choose EIDL if you:

• Needed longer repayment terms
• Had diverse operating expenses beyond payroll
• Were self-employed with minimal payroll
• Wanted larger loan amounts
• Needed more flexible use of funds

Best for: Sole proprietors, businesses with high fixed costs (rent, equipment leases), and those needing working capital to bridge longer recovery periods.

The Ideal Strategy: Both

For businesses that qualified for both programs, applying for both was often the smartest move:

1. Apply for PPP first (faster processing, potential forgiveness)
2. Apply for EIDL for additional working capital
3. Use PPP funds exclusively for payroll to maximize forgiveness
4. Use EIDL funds for all other eligible operating expenses
5. Plan EIDL repayment into long-term budget (30-year term makes payments manageable)

This approach maximized grant funding (through PPP forgiveness) while providing additional liquidity at favorable terms (through EIDL).

Common Mistakes to Avoid

PPP Mistakes

Miscalculating payroll: The loan amount was based on specific payroll calculations. Errors could result in lower forgiveness or requests to return funds.

Failing the 60/40 rule: If less than 60% went to payroll, forgiveness was reduced proportionally.

Reducing headcount or wages: Cutting employees or reducing wages by more than 25% reduced forgiveness amounts.

Missing documentation: Forgiveness required extensive documentation. Poor record-keeping led to partial forgiveness or denials.

EIDL Mistakes

Using funds for prohibited purposes: Paying dividends, expanding facilities, or refinancing debt violated program rules and could trigger repayment demands.

Failing to maintain separate records: Commingling EIDL and other funds made it difficult to prove proper use.

Not planning for repayment: Even with 30-year terms, businesses needed cash flow plans to ensure they could make payments.

Assuming loans were forgivable: Some business owners mistakenly believed EIDL was forgivable like PPP, leading to financial planning errors.

Current Status: What Happens Now?

Both programs are now closed to new applications:

• PPP applications closed: May 31, 2021
• COVID-19 EIDL applications closed: January 1, 2022

For Existing Borrowers

PPP borrowers should:

• Ensure forgiveness applications are submitted (deadline is five years from loan origination but payments begin 10 months after covered period)
• Maintain documentation for at least six years
• Prepare for potential SBA audits, especially for loans over $2 million
• Make payments if forgiveness was denied or partial

EIDL borrowers must:

• Make regular monthly payments (18-month deferment period has ended for most)
• Maintain proper use of funds documentation
• Plan for long-term repayment over the 30-year term
• Consider refinancing if better terms become available (though EIDL terms are already quite favorable)

Tax Implications

PPP: Forgiven amounts are not taxable income, and expenses paid with forgiven PPP funds are fully deductible—a significant benefit that initially wasn't guaranteed.

EIDL: Interest paid is tax-deductible as a business expense, but the loan principal is not. EIDL advance grants that were forgiven are also not taxable income.

Lessons Learned for Future Disasters

Understanding EIDL vs PPP provides valuable insights for future disaster relief programs:

What Worked Well

Speed matters: The PPP's bank-based distribution allowed for relatively rapid deployment of funds compared to direct SBA processing.

Forgiveness incentives: The PPP's forgiveness feature successfully encouraged businesses to retain employees during shutdowns.

Flexible terms: EIDL's 30-year terms at low rates provided manageable repayment paths for struggling businesses.

Complementary programs: Allowing businesses to access both programs provided more comprehensive support.

Areas for Improvement

Clearer initial guidance: Both programs suffered from confusing or changing rules, especially in early months.

Fraud prevention: Rapid deployment led to significant fraud, requiring better verification systems in future programs.

Equity in access: Larger businesses with established banking relationships often received funds faster, disadvantaging smaller businesses.

Simplification: The complexity of both programs created barriers for the smallest businesses without professional accounting help.

Record-Keeping Best Practices

Whether you're still managing EIDL repayment or awaiting final PPP forgiveness determination, maintaining proper records is essential:

PPP Documentation to Retain

• Original loan application and supporting documents
• Bank statements showing fund receipt and expenditure
• Payroll reports for entire covered period
• Tax forms (Form 941, state quarterly wage reports)
• Receipts for rent, utilities, and other qualified expenses
• FTE calculations and supporting payroll records
• Forgiveness application and supporting documentation
• SBA forgiveness determination letter

EIDL Documentation to Retain

• Original loan application and approval documents
• Loan agreement and promissory note
• Bank statements showing fund receipt
• Invoices and receipts for all expenses paid with EIDL funds
• Separate accounting records showing EIDL fund uses
• Payment history and confirmation
• Correspondence with SBA

Retention period: Keep all documentation for at least six years from loan origination or forgiveness determination.

Simplify Your Financial Management

Whether you're managing EIDL repayment, tracking PPP forgiveness, or planning for future business challenges, maintaining organized financial records is essential. The complexity of these programs highlighted how critical clear bookkeeping is for business resilience.

Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data—no black boxes, no vendor lock-in. With version-controlled records and AI-ready formatting, you'll be prepared for whatever comes next. Get started for free and experience financial clarity that scales with your business.

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Note: This article provides general information about EIDL and PPP programs based on published guidelines. Both programs are now closed to new applications. For specific questions about existing loans, consult with your lender, the SBA, or a qualified financial professional.