Paycheck Protection Loans vs. Economic Injury Disaster Loans: Explore the DifferenceDavid Cawthon
So you’re exploring the financial assistance that’s available to small businesses, and you’ve likely heard about the CARES Act, SBA disaster relief loans, EIDL and PPP … and your head is probably spinning. And to top it all off, information seems to change daily.
We’ve got you.
Here’s (almost) everything you need to know wrapped into an easy-to-digest, quick glance format.
So first off, at the top level, you’ve got the CARES Act, which was signed into law March 27. (CARES stands for Coronavirus Aid, Relief and Economic Security.)
This act includes funds that help small businesses get loans to help them navigate the hurdles that the COVID-19 pandemic has created. The U.S. Small Business Administration has a few of those funding options on its site, but the two major loan programs we’ll cover here are the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program (EIDL).
Pro tip: While you can apply for both of these loans, you CANNOT use funds from each for the same expenses. And be sure to apply ASAP. There is a funding cap for these loans.
> > > Before you venture further, be sure to download this quick-glance comparison chart that outlines the differences between each program which focuses on how to apply, what each loan offers, what’s forgiven and much, much more.
Looking for other funding resources? Explore the new COVID-19 business finance page for more funding resources and opportunities.
Still stumped? Need help? Tell us what you need on the Financial Assistance Request page.
Let’s dive in …
Paycheck Protection Program Loans
What is PPP? The Paycheck Protection Program (PPP) provides cash-flow assistance through 100% federally guaranteed loans to employers that maintain payroll during this emergency.
If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and the economy recover quicker after the crisis. PPP has a host of attractive features, such as forgiveness of up to eight weeks of payroll based on employee retention and salary levels, no SBA fees and at least six months of deferral with maximum deferrals of up to a year.
Who can apply? Small businesses, including sole proprietors, independent contractors (can’t apply until 4/10) and eligible self-employed workers (who can apply for their own PPP loan)
What can I request that I may not have to repay? Organizations can get up to $10 million in loans for payroll and related benefits, interest on mortgages and other debts, leases and utility payments. PPP loans are forgivable if no employees are laid off or if laid off employees are rehired.
How are these loans forgiven? You have to track expenses for eight weeks, return them to the lender, apply, and if all that’s acceptable, it will be forgiven. That loan forgiveness will be reduced if you lay off workers or cut salaries during this emergency period.
Interest rate? 1% for the portion that’s not forgiven
Loan term? 2-year term
Deferments? 6-month deferment (interest will start to accrue at the beginning of the loan)
Collateral? Nope. No collateral.
Are there personal guarantees? No guarantees, either.
How do I apply? You’ll have to apply through eligible lenders. Use this SBA tool to find these lenders.
> > > A little confused? Want a visual aid? Download this (free) comparison chart that outlines PPP and EIDL and the key differences and similarities for each loan program, so you can make the best choice for your business.
Yes, you can also apply for both programs, but there is a catch. Read on to learn more …
Economic Injury Disaster Loans
What is EIDL? The U.S. Small Business Administration is offering Economic Injury Disaster Loans for small businesses that have suffered substantial economic injury. Here, “substantial” means that a business can’t meet its obligations and can’t pay its regular and necessary operating expenses like rent, staff, etc.
Who can apply? Small businesses, including sole proprietorships, independent contractors and eligible self-employed folks
What can I request that I may not have to repay? Is there an advance? Yes, you can apply for a $10,000 emergency advance that you won’t need to repay.
When funds are available: The site says funds will be available within days of a successful application.
What other funds are available with EIDL and what does the fine print say about repayment? The other part of the loan lets you ask for up to $2 million for working capital (that’s stuff like fixed debt, payroll, etc.), which you will have to pack back, but this money seems to be more flexible than PPP in what it will cover. The big thing here is that your loan eligibility amounts are determined by your financial statements from the prior year, which you’ll need to submit with your application.
Interest rate? 3.75% for for-profits and 2.75% for nonprofits, which begins to accrue when the loan is disbursed
Loan term? 30 years
Any deferments? There’s an automatic one-year deferment on repayment
Collateral for the loans? Collateral will be taken on loans that are $25,000 and up
What about personal guarantees? The personal guarantee requirement is waived for loans under $200,000.
How do I apply? There’s a single application through the SBA: covid19relief.sba.gov/#/
Are you a sole proprietor or contractor? Download this handy checklist that will walk you through all the special sections you’ll need to fill out for your specific type of business.
Your most frequently asked questions about PPP and EIDL
Can I apply for both loans?
Yes, but you can’t use the funds from each loan for the same expenses (like payroll, rent, etc.)
If I receive the EIDL $10,000 advance and PPP, does that $10,000 with EIDL affect the amount that’s forgiven with PPP?
Yes, that $10,000 will be subtracted from the amount that’s forgiven through PPP.
If I already have a previous EIDL loan, can I roll that into the new PPP loans?
More financial help for your business
If you need further help with either of these loans or wonder about what other financial assistance is available, explore the new COVID-19 finance page that’s constantly updated with new information and opportunities.
Not sure what funds are right for you? Fill out the financial assistance request form, and we’ll help connect you with the latest information.