There are two main loan programs to help small business owners through the COVID-19 crisis:
- Economic Injury Disaster Loans (EIDLs)
- SBA Cares Act Paycheck Protection Program Loans (PPPs)
These loan programs have some significant differences, and many small business owners are confused. In the first part of this article we spell out the basic program requirements, and in the second, we answer some frequently asked questions about Economic Injury Disaster Loans (EIDL) versus Paycheck Protection Program Loans (PPP).
Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.
Maximum Loan Amount
EIDL: $2 million
PPP: $10 million
Grant / Forgiveness
EIDL: The Economic Injury Disaster Loan includes a emergency grant of up to $10,000 to be made within three days of application. These grants do not have to be repaid as long as funds are used for:
- providing paid sick leave to employees unable to work due to the direct effect of the COVID–19;
- maintaining payroll to retain employees during business disruptions or substantial slowdowns;
- meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
- making rent or mortgage payments; and
- repaying obligations that cannot be met due to revenue losses.
PPP: If you get one of these loans, you can request forgiveness of the principal portion of the loan for the eight week period after you get the loan that covers:
- Payroll costs
- Interest on a mortgage
No more than 25% of the forgiven amounts may be for non-payroll costs. Your loan forgiveness will be reduced if you decrease your full-time employee headcount. It will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annually in 2019. You may also receive forgiveness for additional wages paid to tipped workers. There is a provision that allows you to rehire employees to qualify for forgiveness. (This article explains what qualifies as payroll.)
Keep in mind, you may qualify for a larger amount of debt that may be forgiven under the Paycheck Protection Program Loan. Use our free SBA Cares Act loan calculator to determine how much you may qualify for under the PPP.
EIDL: 3.75% or 2.75% for non profits.
PPP: 1% on any remaining balance after forgiveness
EIDL: 10 years
PPP: 2 years for any balance not forgiven
It’s expected that most PPP balances will qualify for forgiveness, which explains the shorter repayment period.
EIDL: To qualify, you must be
- a small business, cooperative, ESOP or tribal business with 500 or fewer employees;
- An individual who operates under as a sole proprietorship, with or without employees, or as an independent contractor; or
- A private non-profit or small agricultural cooperative;
- Your business must be directly affected by COVID-19
PPP: The following businesses may be eligible:
- Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees; small businesses,
- 501(c)(19) veteran’s organizations or tribal concerns that meet the SBA size standards (See SBA size standards here);
- sole proprietors or independent contractors;
- Businesses in the food or hospitality industry (NAICS codes beginning in (72) may be eligible on a per location basis; normal affiliation rules are waived for franchises or businesses receiving financial assistance from an SBIC.
Must Be In Business By
EIDL: January 31, 2020
PPP: February 15, 2020
Where to Get These Loans
PPP: A number of lenders will make these loans. However, not all lenders will offer them to all borrowers. There may be geographic restrictions, for example, or some lenders may choose to make larger loans. Nav helps match borrowers to SBA lenders for PPP loans. There is no fee for this service. Fill out your PPP application now to be notified as lenders start making these loans.
EIDL: Only for loans above $200,000
EIDL: Yes for loans over $25,000
EIDL: The legislation states the $10,000 grant is to be made within three days of application. The next disbursement of $25,000 may take a few weeks due to record loan volume.
PPP: Lenders will begin to accept applications beginning April 3 for small businesses and sole proprietors and April 10, 2020 for independent contractors and self-employed individuals. While everyone is trying to make this a fast process, it will depend on how quickly lenders can ramp up to process and fund the loans.
EIDL: Payments are deferred for a year.
PPP: Payments are deferred for at least six months.
Allowable Use of Funds
EIDL: In addition to the use of funds for the grant listed above, EIDLS are working capital loans may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion. Funds cannot be used to pay down long-term debt.
PPP: Loan proceeds may be used for:
- payroll costs;
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- employee salaries, commissions, or similar compensations;
- payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
- rent (including rent under a lease agreement);
- interest on any other debt obligations that were incurred before the covered period
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
EIDL: A personal credit check is required for all owners with 20% or more ownership. A business credit report from Dun & Bradstreet is standard on Disaster Loans. However, if your application is turned down you can still keep the $10,000 advance.
PPP: None is required
Frequently Asked Questions Vs. EIDL and PPP
Can I Apply For EIDL and PPP?
You can apply for both. But you can’t “double dip” and get funds from both loan programs for the same purpose. Specifically the legislation states that a borrower who has taken out an Economic Injury Disaster Loan for purposes other than payroll costs between January 31, 2020, and the date Paycheck Protection Program Loans are first made available are still eligible for a Paycheck Protection Program Loan as long as it is not used for the same purposes. In addition, you must refinance an EIDL received through April 3, 2020 with a Paycheck Protection Program Loan.
Can I Apply For PPP and the Payroll Tax Credit?
There is a payroll tax credit of up to 50% of qualified wages for certain businesses whose operations have been fully or partially suspended by a government order or whose gross receipts in a quarter have fallen by at least half compared to a similar quarter the year before.
Your business cannot receive both the Employee Retention Payroll Tax Credit and a Paycheck Protection Program Loan.
Which Is Better for My Business: EIDL or PPP?
Ultimately, this is an individual decision that will depend on a number of factors, including how much you qualify for, how you plan to use the funds and whether you expect to benefit substantially from forgiveness under PPP. Our advice is to do the following:
- Read the FAQs on the EIDL and FAQs on the PPP. Both are updated frequently.
- Use Nav’s free CARES Act SBA loan calculator to determine how much you may qualify for
- Consult with your tax, legal or financial advisor to make the right choice for your business.