SBA Provides Guidance on Using PPP Loan Proceeds to Refi EIDLs

The Small Business Administration issued a procedural notice on Friday night providing guidance on using Paycheck Protection Program loan proceeds to refinance an SBA Economic Injury Disaster Loan, as well as providing instructions for PPP lenders on the procedure for remitting to SBA any PPP loan funds designated for an EIDL refinance.

Specifically, SBA said, a PPP loan may not be used to refinance an EIDL if the borrower received the EIDL before Jan. 31, 2020, or after April 3, 2020. EIDLs may be refinanced but are not required to be refinanced with PPP loans when the EIDL was received between Jan. 31 and April 3 and the PPP borrower used EIDL proceeds for purposes other than payroll. However, a PPP loans must be used to refinance the full amount of an EIDL when EIDL funds were received between Jan. 31 and April 3 and the borrower used the EIDL funds to cover payroll costs. The amount of the EIDL loan to be refinanced does not include the amount of any EIDL
advance, SBA said, because the EIDL advance does not need to be repaid.

For PPP loan guaranty applications that include an amount for EIDL refinance, the lender must remit the funds directly to SBA. If the PPP lender has already disbursed funds to a borrower, SBA said, the lender is responsible for notifying the borrower of the amount of loan proceeds the borrower must remit to SBA. Both borrowers and lenders may remit funds using, completing SBA Form 1201 (available at the link) and entering the EIDL number in the “SBA loan number” field.