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Should the PPP Loan or EIDL Negatively Impact My Credit Score?

by Lashina Mack | Mar 26, 2022


As the COVID-19 virus forced many small businesses throughout the country to close their doors in order to keep themselves, their customers, and their communities safe, Congress stepped in to help these businesses by passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

This law made available certain funds to businesses that could help them stay afloat during stay-at-home orders and times of decreased consumer spending.

However, there have been issues and confusion surrounding the implementation and rules of programs within the CARES Act, including the Paycheck Protection Program as well as the Economic Injury Disaster Loan program. Many businesses were not able to access the funds distributed by the US Small Business Administration (SBA) to banks for loans. Additionally, many businesses were not sure if accepting these loans would have a negative impact on their business, including their credit scores.

The Paycheck Protection Program

The PPP loan was designed for small businesses that have less than 500 employees, and the aim of the program was to help them maintain their payroll and help with other business expenses, such as utilities. $349 billion in loans were available to a range of different businesses in amounts up to 250% of their average monthly payroll.

Depending on the lender, there could have been a credit check or inquiry completed for these loans. Generally, there are two types of inquiries: soft and hard. Soft inquiries have no effect on your credit, while hard inquiries may have only a slight impact. All inquiries disappear from your credit report within 2 years, and a single inquiry for a loan won’t have a major negative impact on your score in any way.

The worry many businesses had was whether accepting a PPP loan would have a negative impact on their credit scores if they were unable to pay back the loan or other issues arose. However, these loans were considered 100% forgivable as long as a business used the funds for payroll and other purposes within 8 weeks of receiving the loan.

The House later passed a bill extending the PPP spending period from the original eight weeks to 24. However, either way, if businesses did not fill out their forgiveness documentation, then they will assuredly be on the hook for the loan.

Economic Injury Disaster Loans

The EIDL program was meant for businesses with less than 500 employees and other types of organizations, such as private non-profits. These loans were up to $2 million that also offered a $10,000 advance grant that was designed to help businesses in great need. Unlike the PPP loans, these loans (with an exemption for the advance), cannot be forgiven but have a low-interest rate.

Similar to paycheck loans, EIDL loans required a credit check. However, these checks will not adversely affect credit in any way, as inquiries will only drop a score by a few points. This drop is then quickly washed away in a few months as long as there are no other inquiries.

Overall, the loan programs that were a part of the CARES Act were not supposed to have a negative impact on businesses or their credit whatsoever. In some cases, however, there have been complaints from several individuals online indicating that their credit files have had notations regarding the PPP or EIDL and how their credit scores were impacted. If this sounds familiar, that’s a problem.

Make sure to submit your disputes to the credit bureaus immediately, as this should not be happening.

Yes, these are actual loans, however, since these are disaster-related loans per stipulations from the CARES Act, they are not supposed to negatively affect your credit. The only circumstance that would cause negative reporting would be if your PPP loan was not forgiven due to not spending the funds as agreed or if you failed to fill out the paperwork. Should you find yourself in a position of having to pay the loan back, make sure you pay it back on time. Late payments will affect your business or personal credit (depending on your business structure).

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