SBA Loan Types and Tax Ramifications
What SBA Loan Types are available, and what are the Tax Ramifications that go along with these loans?
The U.S. government has launched many programs to support local businesses. To add some more clarity, we want to share information on the two SBA COVID-19 loan options.
Here’s a chart that shows a comparison between the two SBA COVID-19 loans (EIDL and PPP) and whether they’re forgivable, their interest rates, repayment terms, how the EIDL advance plays a role, and how they will be treated for tax purposes.
| Economic Injury Disaster Loan (EIDL) | Paycheck Protection Program (PPP) | |
| Program Status | Active, EIDL loan application open. | Active, PPP loan program portal reopened on Monday, January 11, 2021. |
| Program Goal | To support small businesses and non-profit organizations that experience a loss of revenue due to COVID-19 and located in a declared disaster area | To provide a direct incentive for small business and to help keep their workers employed |
| Eligibility | • Small businesses
• Small agricultural cooperatives •Most private non-profit organizations |
• Small businesses
• Small agricultural cooperatives •Most private non-profit organizations |
| Forgiveness of Loan | EIDL Loans are not forgivable. The loan should be used for working capital and regular operating expenses (e.g., health care, rent, utilities, payroll) and can be pre-paid without penalties.
• EIDL Advance funds are forgivable. |
The business can apply for loan forgiveness prior loan maturity date if the funds were used for eligible expenses (e.g., payroll, business mortgage, rent, utilities) within an 8–24-week period after receiving the funds. |
| Loan Amount | Up to 6 months of working capital, up to $2M | Up to $10M |
| Interest rates | • No additional fees
• 3.75% for businesses (fixed) • 2.75% for nonprofits (fixed) |
1%, no additional fees |
| Loan term | Up to 30 years, no pre-payment penalty or fees | • 2 years for loans issued prior June 5, 2020,
• 5 years for loans issued after June 5, 2020 |
| Application process | Directly on SBA website https://disasterloan.sba.gov/ela/ | Through participating SBA 7(a) lenders, FDIC insured institutions, credit unions, and Farm Credit Systems |
| Tax impact | EIDL Advance grant funds are taxable unless repaid; the EIDL loan is reported as a longterm liability and is not taxable. Qualified expenses paid for with the funds are tax-deductible. | PPP loans are not taxable. Forgiven loans are reported as nontaxable other income. Unforgiven loans are reported as longterm liabilities that must be repaid. Expenses paid with PPP funds are tax deductible, even if the loan is forgiven. IRS and Treasury urge small businesses to apply for loan forgiveness.
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by Maria Climan – Content Creator for Half Full Marketing
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