EIDL & PPP Eligible Expenses

The Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP) were created to help small businesses survive the economic impact of the COVID19 pandemic. While both programs provide crucial funding, the rules governing what expenses can be covered differ in important ways. This guide explains the types of costs that qualify under each program, common misconceptions, and bestpractice tips for documentation.

Overview of the Two Programs

EIDL is a lowinterest loan that can be used for working capital and a broad range of business expenses. The loan is repaid over a 30year term, and the interest rate is fixed at 3.75% for businesses (2.75% for nonprofits).

PPP was a forgivable loan intended primarily to keep employees on the payroll. A portion (or all) of the loan can be forgiven if the funds are used for qualifying expenses within a 8 or 24week covered period, depending on the loans disbursement date.

PPP Eligible Expenses

The Small Business Administration (SBA) defined a limited set of eligible costs for PPP loan forgiveness. To obtain full forgiveness (or the maximum possible amount), at least 60% of the loan must be spent on payroll. The remaining 40% can be used for a variety of other costs.

1. Payroll Costs (minimum 60%)

Salary, wages, commissions, tips, and bonuses.
Employers share of payroll taxes (Social Security, Medicare, FUTA, SUTA).
Benefits such as health insurance, retirement contributions, and group life insurance.
Payments for covered employees who were furloughed or whose hours were reduced (must be documented as a reduction in salary).

2. Other Eligible Expenses (up to 40%)

Mortgage interest or rent on business property.
Utilities (electric, water, gas, telephone, internet, etc.).
Software and SaaS subscriptions required for business operations (e.g., accounting platforms, cloud services).
Business insurance premiums (property, casualty, workers compensation).
Property damage costs related to the pandemic (e.g., repairs and restoration).
Professional services such as legal and accounting fees that are directly related to the continuity of the business.
Medical supplies, personal protective equipment (PPE), and cleaning services that protect employees and customers.
Costs of a relocation or restructure that helps maintain operations.

3. What Is NOT Eligible for PPP Forgiveness

Principal repayments of the PPP loan.
Dividends, equity buybacks, or other distributions to owners.
Expenditures for expansion, acquisition, or new product development.
Luxury vehicles or unrelated personal expenses.
Any costs that are not documented or not directly tied to the business.

EIDL Eligible Expenses

Unlike PPP, the EIDL does not require a specific allocation to payroll, nor does it have a forgiveness component. Borrowers can use the loan for any normal business expense that they could normally claim as a tax deduction, provided the expense is necessary for the continuation of operations.

1. Working Capital

Operating expenses needed to keep the business running (e.g., utilities, rent, insurance, and daytoday supplies).
Inventory purchases for businesses that sell physical goods.
Outstanding accounts payable or vendor invoices.

2. Payroll and EmployeeRelated Costs

Salaries, wages, commissions, and bonuses.
Payroll taxes and employerpaid benefits.
Costs associated with hiring temporary staff or contractors to fill gaps.

3. Fixed Assets & Equipment

Purchase or lease of machinery, equipment, or computers needed for operations.
Repair or maintenance of existing assets.

4. Real Estate

Mortgage principal payments (if the loan is used as a cashout for the mortgage). *
Renovations or improvements to the business premises that are required for healthandsafety compliance.

*The SBA clarified that using EIDL funds to pay down a mortgage is allowed as long as the principal payment is not a prerequisite for maintaining the loan eligibility.

5. Health & Safety Measures

PPE, sanitizing stations, air filtration upgrades, and barriers.
Facility modifications to meet local health mandates.

6. Others

Professional service fees (consultants, legal, accounting) directly related to pandemic response.
Advertising and marketing costs aimed at retaining or attracting customers.
Technology upgrades that enable remote work or digital sales channels.

Key Differences Between PPP & EIDL Eligible Expenses

Feature	PPP	EIDL
Forgiveness	Yes based on eligible expense use	No loan must be repaid
Primary purpose	Preserve payroll	General working capital
Minimum payroll share	60%	None
Allowed expense categories	Payroll + limited nonpayroll	Broad any ordinary & necessary expense
Documentation	Detailed payroll and expense receipts needed for forgiveness	Standard business accounting records sufficient

Best Practices for Documentation

Maintain a separate bank account for PPP or EIDL funds whenever possible. It simplifies tracking.
Keep original invoices, receipts, and payroll reports. Digital copies are acceptable if they are legible and timestamped.
Track dates of expense to ensure they fall within the covered period (PPP) or the loan disbursement window (EIDL).
Use accounting software that can generate expense reports filtered by date and category.
Document any reductions in employee hours or wages. For PPP, showing a genuine reduction is required for forgiveness.
Retain contracts and service agreements for any new subscriptions or equipment purchases.
Consult a tax professional before claiming any expense that may have tax implications.

Common Mistakes to Avoid

Using PPP funds for noneligible items such as loan principal repayment or owner draws.
Failing to spend at least 60% of the PPP loan on payroll, which reduces forgiveness proportionally.
Comixing PPP with other SBA loans in a single account without clear segregation.
Submitting inaccurate payroll documents that do not match the employers payroll tax filings.
Claiming the same expense for both PPP forgiveness and as a deduction on tax returns this can lead to doubledipping issues.

Resources

For the most uptodate guidance, refer to the official SBA webpages and related government publications:

Understanding the nuances of eligible expenses helps you maximize the benefit of each program while staying compliant. By keeping meticulous records and following the guidelines outlined above, you can protect your business and position it for recovery.

Reference Files For EIDL/PPP ELIGIBLE EXPENSES

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