Quick Overview Of PPP And EIDL Loans For Construction Firms
Construction businesses that received PPP and EIDL loans must carefully follow SBA rules to maximize benefits and avoid costly penalties. PPP loans may be partially or fully forgiven if funds are used correctly for payroll and approved expenses, while EIDL loans are long-term, low-interest loans that must be repaid and can affect future financing. Accurate bookkeeping, proper documentation, and separation of loan expenses are critical, as the SBA has the right to audit borrowers and pursue fraud cases for misuse of funds. With evolving guidance and strict compliance requirements, contractors are strongly encouraged to work with accounting or legal experts to protect their business, stay compliant, and make the most of available federal relief programs.
What Construction Companies Need To Know About PPP And EIDL Loans
This is a good article for our construction clients for information on PPP and EIDL loans. Most of our bond clients are for construction – surety bonds (whether it be construction bonds, bid bonds, or how does a performance bond work). For our clients, they mostly used the PPP and EIDL loans early this year in order to make it through the worst of the pandemic. Take a look and see if this can help our your business.
https://www.constructionbusinessowner.com/popular-now/construction-firms-guide-ppp-eidl-loans
The Construction Firm’s Guide to PPP & EIDL Loans
What you need to know about federal funding & protecting your business during the pandemic
by Jen Ginther Friday, October 16th, 2020
Like millions of American business owners, you may have spent days, weeks or even months jumping through hoops to secure your company’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program loans. You’ve been successful in applying and have received funding; so now what?
March 2020 (when the coronavirus pandemic began) seems so long ago, and while a lot has happened since then, we still know a lot less than we thought we would by now.
Businesses need to be able to utilize the many benefits offered by the PPP and EIDL loans, but also be aware that misuse or ignorance of the agreement terms can lead to loss of benefits or even worse civil and criminal fraud issues.
Most of what is currently in effect from the Small Business Administration (SBA) is being written and adapted as we go along. The initial rules remain but are continually being updated with interim rulings and new guidance from the United States Congress. There is a lot of speculation about what’s to come and “wait and see” happening.
Potential for Blanket Forgiveness
At print time, there was talk that Congress may pass a plan for across-the-board loan forgiveness for PPP loans under $150,000. Given that approximately 85% of all PPP loans are under this amount, if passed, the legislation will help lending banks, accountants, lawyers and business owners from having to deal with an avalanche of paperwork for loans that they ultimately don’t want to or have enough time to deal with.
When you mix government-backed loans with uncertainty and continually changing interpretations, things get interesting very quickly. It seems we really will have to wait and see how this plays out, all the while keeping up with changes.
A word of warning in case your company is a borrower of a PPP Loan under $150,000 that may be forgiven by an upcoming Congressional ruling, though—you still need to continue to abide by all of the rules and terms of the loan agreement as if the loan was not forgiven. The SBA still has the authority to audit your books and require you to adhere to the original terms you agreed to under the loan.
The Forgiveness Form
If Congress does not pass forgiveness, there are things to know to maximize potential forgiveness when submitting the SBA Forgiveness Form 3508 (or if eligible, the short form, the 3508 EZ). Employers that did not lay off or lose any employees to resignation and did not reduce their employees’ wages by 25% or more will likely be eligible for full forgiveness and are also able to use the 3508 EZ Form.
If your company did lay off employees or reduce employee salaries, this will be calculated on Schedule A of the SBA Form 3508. It’s a good idea to hire an expert to help with these calculations as they are very complex, dependent upon interpretation. There are safe harbor provisions that accounting and legal experts will analyze to see if your company qualifies.
The Forgiveness Timeline
If the SBA rejects your application, you have the right to file an appeal, which is more of an administrative review rather than a court case, and only the actual borrower can make the appeal. If you want representation, you will need to hire an attorney, as certified public accountants and enrolled agents are not allowed to represent borrowers. This is another great reason to follow the rules closely, keep excellent books and receipts, and hire an expert to assist you.
If your PPP forgiveness application and appeal are denied, or if your company doesn’t use the funds for forgivable expenses, you will be required to repay your loan. The PPP loan is not a personally guaranteed loan, but in the loan agreement the SBA notes that it will pursue criminal charges if the loan proceeds are used fraudulently.
EIDL Loans
The EIDL program was a separate $374-billion program that created low-interest, fixed-rate, non-forgivable loans to provide emergency assistance during the shutdowns caused by the coronavirus pandemic.
If you signed an EIDL loan, you will need to repay your loan amount at 3.75% interest over 30 years, with loan repayment due to begin 12 months from the date of the loan funding.
The SBA is administering these loans and has already sent out forms in the mail detailing repayment information. EIDL loan applications are still available online (covid19relief.sba.gov) for certain qualified businesses. If you have applied for an EIDL loan and are still waiting, you can check the status by sending an email to [email protected].
What You Should Know
EIDL Loans may indeed affect future financing for the business. Loans under $200,000 did not require a personal guarantee, but all of the loans can appear on credit reports and affect the ability of the company to secure financing in the future. It is a breach of the loan agreement to pledge the same collateral to a different lender, and there is usually a federal lien with priority on the business assets that would deter other lenders from lending to the business until the federal priority is met and paid.
Terms of the loans also state that lenders have 60 days to review loan forgiveness applications, mostly to check calculations and ensure appropriate documentation was provided. They then must submit the application to the SBA, which has 90 days to complete its review. The SBA has stated that all loans over $2 million will be reviewed for compliance with program requirements.
Borrowers cannot change their business ownership or entity, such as adding or removing partners or merging with or acquiring other companies, without permission from the SBA and without risking default on the loan agreement. Increases in owner compensation or expenses—including bonuses—will be scrutinized so beware of making changes.
Both PPP & EIDL loans funds deposits should be entered on your company books as separate loans. Over the 8- or 24-week period, (or longer for EIDL loans) record all relevant, approved expenses using the date, vendor or payee, amount, category (such as payroll, rent, interest, etc.), as well as the purpose of the transaction. In addition to paper copies, retain the receipts, particularly SBA-loan-related expenses, in a cloud-based backup. EIDL loan receipt expenses should be kept for 3 years after the disbursement of loan funds.
For the PPP loan, at the end of the 8- or 24-week period, add up the category expenses and create a report that is to be attached to your loan forgiveness application. Make sure you don’t “double dip” and use the same expenses for both loans.
Once the forgiveness has been approved, you can adjust the loan account to a “Non-Taxable Gains or Other Income” account in your chart of accounts. Any amount that is not forgiven will remain in the loan account until repaid. Loan agreement terms dictate that the SBA has the right to audit borrower books at any time, so make sure to keep current with monthly reconciliations and reports.
It is a good idea for businesses is to use a payroll company to run payroll. This is more affordable than ever and helps avoid missed filing and deposit dates. The best companies will help with keeping up to date and compliant with PPP and EIDL requirements. This is valuable for existing SBA loan reporting, but also if there are new PPP or other future disaster-related loan or grant programs, as this important information will be instantly available. For companies that have SBA disaster loans from pre-COVID-19, call the SBA to see if they are eligible for forgiveness or if there is other favorable negotiation of terms for these loans.
To date, the U.S. Department of Justice has filed 39 PPP fraud cases, charging about 56 defendants. One of the cases involved purchasing a Lamborghini. Other cases used the loan funds to purchase vehicles, pay for their kids’ college tuition, buy boats and other toys or pay off mortgages. These fraud cases reinforce what not to do with your SBA loan funds. They should also put all borrowers on alert that the federal government will not play when it comes to fraudulent abuse of these loans.
Reach out to your lender or call the SBA if you suspect that your business did not get the correct amount for your PPP loan, which is 2.5 times the average payroll costs per month. They will help you figure out how to correct this issue. It is far better to handle it immediately so that it doesn’t appear to be deliberate or fraudulent.
Many cases exist where borrowers received more than they should have—an error some construction companies made was including subcontractor payments in their payroll calculations. Only W-2 employees’ wages should have been used in calculating payroll costs.
Dos & Don’ts of SBA Loan Proceeds
Do use your proceeds for the following:
To pay off what your company owes the IRS
To pay off revolving credit card debt for business expenses incurred prior to the disaster
To pay off extraordinary expenses that have created “needs outside of normal operations” and directly due to the disaster. This may include: hardware for increased remote work, extra cleaning services and supplies, storage to make additional space in the building for social distancing, accounting, legal and consulting fees and advertising.
Do not use your proceeds for the following:
Payment of dividends, bonuses or payments to owners, partners, directors or stockholders (unless directly related to the performance of services for the benefit of the applicant)
Repayment of stockholder or principal loans (except when the funds were applied on an emergency basis due to the disaster and non-repayment would cause undue hardship to the stockholder or principal.
Purchase of any new assets, such as land, buildings and equipment.
Relocation is not allowed using EIDL funds.
Refinancing long-term debt (debt that has a repayment period over one year), such as paying off other SBA loans, including regular installment payments.
Other Financing Options
The Main Street Lending Program (MSLP) hasn’t gotten much press, but Congress authorized the U.S. Treasury and Federal Reserve to release and administer through the Boston Federal Reserve a program to help small to midsize businesses.
The Federal Reserve is releasing $2.3 trillion in addition to $454 billion from the Treasury to support these programs. These resources tend to be a better fit for companies that are not really in financial trouble and were doing well before COVID-19 and need help with inexpensive liquidity.
Did You Know?
The coronavirus pandemic has affected almost every business in
the U.S. in some way, and government aid has proven to
be a lifeline for some businesses. Here’s a few interesting statistics:
5,212,128—Number of loans approved under the PPP program
$525,012,201,124—Amount of approved dollars under the PPP program
$100,729—Average PPP program loan size
3,573,856—Number of approved EIDL loans
$188,022,021,024—Amount of approved dollars under the EIDL
loan program
Jennifer Ginther is a certified Florida general contractor and roofing contractor, a QuickBooks pro adviser, and an IRS enrolled agent, who enjoys helping taxpayers get the IRS off their backs. She is the owner of Contractor Pro Books Inc., a virtual bookkeeping and tax consulting firm. Contact Ginther at [email protected]
The Construction Firm’s Guide to PPP & EIDL Loans
What you need to know about federal funding & protecting your business during the pandemic
by Jen Ginther Friday, October 16th, 2020
Like millions of American business owners, you may have spent days, weeks or even months jumping through hoops to secure your company’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program loans. You’ve been successful in applying and have received funding; so now what?
March 2020 (when the coronavirus pandemic began) seems so long ago, and while a lot has happened since then, we still know a lot less than we thought we would by now.
Businesses need to be able to utilize the many benefits offered by the PPP and EIDL loans, but also be aware that misuse or ignorance of the agreement terms can lead to loss of benefits or even worse civil and criminal fraud issues.
Most of what is currently in effect from the Small Business Administration (SBA) is being written and adapted as we go along. The initial rules remain but are continually being updated with interim rulings and new guidance from the United States Congress. There is a lot of speculation about what’s to come and “wait and see” happening.
Potential for Blanket Forgiveness
At print time, there was talk that Congress may pass a plan for across-the-board loan forgiveness for PPP loans under $150,000. Given that approximately 85% of all PPP loans are under this amount, if passed, the legislation will help lending banks, accountants, lawyers and business owners from having to deal with an avalanche of paperwork for loans that they ultimately don’t want to or have enough time to deal with.
When you mix government-backed loans with uncertainty and continually changing interpretations, things get interesting very quickly. It seems we really will have to wait and see how this plays out, all the while keeping up with changes.
A word of warning in case your company is a borrower of a PPP Loan under $150,000 that may be forgiven by an upcoming Congressional ruling, though—you still need to continue to abide by all of the rules and terms of the loan agreement as if the loan was not forgiven. The SBA still has the authority to audit your books and require you to adhere to the original terms you agreed to under the loan.
The Forgiveness Form
If Congress does not pass forgiveness, there are things to know to maximize potential forgiveness when submitting the SBA Forgiveness Form 3508 (or if eligible, the short form, the 3508 EZ). Employers that did not lay off or lose any employees to resignation and did not reduce their employees’ wages by 25% or more will likely be eligible for full forgiveness and are also able to use the 3508 EZ Form.
If your company did lay off employees or reduce employee salaries, this will be calculated on Schedule A of the SBA Form 3508. It’s a good idea to hire an expert to help with these calculations as they are very complex, dependent upon interpretation. There are safe harbor provisions that accounting and legal experts will analyze to see if your company qualifies.
The Forgiveness Timeline
If the SBA rejects your application, you have the right to file an appeal, which is more of an administrative review rather than a court case, and only the actual borrower can make the appeal. If you want representation, you will need to hire an attorney, as certified public accountants and enrolled agents are not allowed to represent borrowers. This is another great reason to follow the rules closely, keep excellent books and receipts, and hire an expert to assist you.
If your PPP forgiveness application and appeal are denied, or if your company doesn’t use the funds for forgivable expenses, you will be required to repay your loan. The PPP loan is not a personally guaranteed loan, but in the loan agreement the SBA notes that it will pursue criminal charges if the loan proceeds are used fraudulently.
EIDL Loans
The EIDL program was a separate $374-billion program that created low-interest, fixed-rate, non-forgivable loans to provide emergency assistance during the shutdowns caused by the coronavirus pandemic.
If you signed an EIDL loan, you will need to repay your loan amount at 3.75% interest over 30 years, with loan repayment due to begin 12 months from the date of the loan funding.
The SBA is administering these loans and has already sent out forms in the mail detailing repayment information. EIDL loan applications are still available online (covid19relief.sba.gov) for certain qualified businesses. If you have applied for an EIDL loan and are still waiting, you can check the status by sending an email to [email protected].
What You Should Know
EIDL Loans may indeed affect future financing for the business. Loans under $200,000 did not require a personal guarantee, but all of the loans can appear on credit reports and affect the ability of the company to secure financing in the future. It is a breach of the loan agreement to pledge the same collateral to a different lender, and there is usually a federal lien with priority on the business assets that would deter other lenders from lending to the business until the federal priority is met and paid.
Terms of the loans also state that lenders have 60 days to review loan forgiveness applications, mostly to check calculations and ensure appropriate documentation was provided. They then must submit the application to the SBA, which has 90 days to complete its review. The SBA has stated that all loans over $2 million will be reviewed for compliance with program requirements.
Borrowers cannot change their business ownership or entity, such as adding or removing partners or merging with or acquiring other companies, without permission from the SBA and without risking default on the loan agreement. Increases in owner compensation or expenses—including bonuses—will be scrutinized so beware of making changes.
Both PPP & EIDL loans funds deposits should be entered on your company books as separate loans. Over the 8- or 24-week period, (or longer for EIDL loans) record all relevant, approved expenses using the date, vendor or payee, amount, category (such as payroll, rent, interest, etc.), as well as the purpose of the transaction. In addition to paper copies, retain the receipts, particularly SBA-loan-related expenses, in a cloud-based backup. EIDL loan receipt expenses should be kept for 3 years after the disbursement of loan funds.
For the PPP loan, at the end of the 8- or 24-week period, add up the category expenses and create a report that is to be attached to your loan forgiveness application. Make sure you don’t “double dip” and use the same expenses for both loans.
Once the forgiveness has been approved, you can adjust the loan account to a “Non-Taxable Gains or Other Income” account in your chart of accounts. Any amount that is not forgiven will remain in the loan account until repaid. Loan agreement terms dictate that the SBA has the right to audit borrower books at any time, so make sure to keep current with monthly reconciliations and reports.
It is a good idea for businesses is to use a payroll company to run payroll. This is more affordable than ever and helps avoid missed filing and deposit dates. The best companies will help with keeping up to date and compliant with PPP and EIDL requirements. This is valuable for existing SBA loan reporting, but also if there are new PPP or other future disaster-related loan or grant programs, as this important information will be instantly available. For companies that have SBA disaster loans from pre-COVID-19, call the SBA to see if they are eligible for forgiveness or if there is other favorable negotiation of terms for these loans.
To date, the U.S. Department of Justice has filed 39 PPP fraud cases, charging about 56 defendants. One of the cases involved purchasing a Lamborghini. Other cases used the loan funds to purchase vehicles, pay for their kids’ college tuition, buy boats and other toys or pay off mortgages. These fraud cases reinforce what not to do with your SBA loan funds. They should also put all borrowers on alert that the federal government will not play when it comes to fraudulent abuse of these loans.
Reach out to your lender or call the SBA if you suspect that your business did not get the correct amount for your PPP loan, which is 2.5 times the average payroll costs per month. They will help you figure out how to correct this issue. It is far better to handle it immediately so that it doesn’t appear to be deliberate or fraudulent.
Many cases exist where borrowers received more than they should have—an error some construction companies made was including subcontractor payments in their payroll calculations. Only W-2 employees’ wages should have been used in calculating payroll costs.
Dos & Don’ts of SBA Loan Proceeds
Do use your proceeds for the following:
To pay off what your company owes the IRS
To pay off revolving credit card debt for business expenses incurred prior to the disaster
To pay off extraordinary expenses that have created “needs outside of normal operations” and directly due to the disaster. This may include: hardware for increased remote work, extra cleaning services and supplies, storage to make additional space in the building for social distancing, accounting, legal and consulting fees and advertising.
Do not use your proceeds for the following:
Payment of dividends, bonuses or payments to owners, partners, directors or stockholders (unless directly related to the performance of services for the benefit of the applicant)
Repayment of stockholder or principal loans (except when the funds were applied on an emergency basis due to the disaster and non-repayment would cause undue hardship to the stockholder or principal.
Purchase of any new assets, such as land, buildings and equipment.
Relocation is not allowed using EIDL funds.
Refinancing long-term debt (debt that has a repayment period over one year), such as paying off other SBA loans, including regular installment payments.
Other Financing Options
The Main Street Lending Program (MSLP) hasn’t gotten much press, but Congress authorized the U.S. Treasury and Federal Reserve to release and administer through the Boston Federal Reserve a program to help small to midsize businesses.
The Federal Reserve is releasing $2.3 trillion in addition to $454 billion from the Treasury to support these programs. These resources tend to be a better fit for companies that are not really in financial trouble and were doing well before COVID-19 and need help with inexpensive liquidity.
Did You Know?
The coronavirus pandemic has affected almost every business in
the U.S. in some way, and government aid has proven to
be a lifeline for some businesses. Here’s a few interesting statistics:
5,212,128—Number of loans approved under the PPP program
$525,012,201,124—Amount of approved dollars under the PPP program
$100,729—Average PPP program loan size
3,573,856—Number of approved EIDL loans
$188,022,021,024—Amount of approved dollars under the EIDL
loan program
Jennifer Ginther is a certified Florida general contractor and roofing contractor, a QuickBooks pro adviser, and an IRS enrolled agent, who enjoys helping taxpayers get the IRS off their backs. She is the owner of Contractor Pro Books Inc., a virtual bookkeeping and tax consulting firm. Contact Ginther at [email protected]
Frequently Asked Questions
What is the difference between PPP and EIDL loans for construction businesses?
PPP loans were designed to help contractors keep employees on payroll and may be forgiven if funds are used for eligible expenses like payroll, rent, utilities, and interest. EIDL loans, on the other hand, are low-interest, long-term disaster loans that must be repaid and are intended to cover broader working capital needs caused by economic disruption. While PPP focuses on short-term payroll support with forgiveness potential, EIDL provides longer-term liquidity but creates ongoing debt obligations.
How can a construction company qualify for full PPP loan forgiveness?
To qualify for full forgiveness, a contractor must use PPP funds primarily for payroll costs and maintain employee headcount and wages within SBA limits during the covered period. Employers who did not reduce wages by more than 25% and avoided layoffs may qualify for simplified forgiveness using SBA Form 3508EZ. Detailed documentation of payroll, rent, utilities, and other eligible expenses is essential, as lenders and the SBA can review and audit submissions.
What expenses are allowed and prohibited under PPP and EIDL loans?
Allowed uses generally include payroll, rent, utilities, mortgage interest, certain operating costs, and disaster-related business expenses. Prohibited uses include owner dividends, bonuses unrelated to services, purchasing new assets, refinancing long-term debt, relocating a business, or using funds for personal expenses. Misuse of funds can result in denial of forgiveness, repayment demands, and potential civil or criminal penalties.
Can PPP or EIDL loans affect future financing for contractors?
Yes. EIDL loans in particular may place federal liens on business assets and can appear on credit reports, which may impact a contractor’s ability to secure future financing or bonding. Even though PPP loans may be forgiven, lenders and sureties may still review how funds were used. Maintaining clean records and demonstrating compliance helps protect a company’s financial credibility.
What records should construction businesses keep for SBA loan compliance?
Contractors should maintain detailed payroll reports, bank statements, receipts, invoices, and expense logs showing date, vendor, category, and purpose. PPP and EIDL funds should be tracked separately in accounting systems. Documents should be retained for several years, as the SBA has the authority to audit loans—especially larger ones—long after funds are disbursed.
What happens if a PPP forgiveness application is denied?
If forgiveness is denied, the loan converts to a repayable obligation under its original terms. Borrowers have the right to appeal SBA decisions, though appeals are administrative and may require legal counsel. If funds were used improperly, the SBA may pursue repayment and, in severe cases, fraud enforcement. Following rules closely and seeking expert guidance greatly reduces this risk.
Why should contractors work with accounting or legal experts for PPP and EIDL loans?
PPP forgiveness calculations, safe harbor rules, and evolving SBA guidance can be complex. Accountants and attorneys help ensure correct payroll calculations, documentation, and compliance with changing rules. Expert support reduces errors, speeds forgiveness, and protects contractors from costly mistakes or enforcement actions.
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Protecting Construction Businesses Through Smart SBA Loan Management
PPP and EIDL loans gave construction companies critical relief during uncertainty, but the real value comes from using those funds correctly. Staying compliant, keeping clean records, and understanding forgiveness and repayment rules can protect your business from audits, penalties, and unexpected debt while strengthening long-term financial health.
Now is the time to stay proactive. Review your PPP and EIDL usage, organize your documentation, and consult trusted accounting or legal experts to ensure every dollar is working for your business. With the right guidance and discipline, your company can move forward stronger, more stable, and ready for the next opportunity.
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