Understanding the Economic Injury Disaster Loan and the Paycheck Protection Program

With the COVID-19 pandemic declared a national emergency and causing massive economic disruption, two programs have been put in place to help businesses make it through. 

 

The Small Business Administration (SBA) created the Economic Injury Disaster Loan Assistance Program (EIDL) for small businesses in the U.S. President Trump has also signed the Coronavirus Aid, Relief, and Economic Security Act (CARES). CARES is a stimulus bill including provisions for individuals and businesses, including up to $349 billion in federally guaranteed loans for the Paycheck Protection Program (PPP). 

 

These are two distinct programs and you CANNOT get both of these loans at the same time (although you can use a PPP loan to refinance an EIDL loan if approved). EIDL loans are available now and PPP loans are in the works, as of this writing. Below is a side-by-side comparison of the programs and their terms to help you decide which is best for you.  

 

 

EIDL PPP

Lender

Small Business Administration A Bank underwritten by the SBA

Maximum loan amount

You can borrow up to $2 million and may request to receive an advance of $10,000 from the SBA while awaiting approval. The advance is sent out within 3 days and does not have to be repaid in the event you are denied the loan.  You can borrow up to $10 million, based on 2.5x average monthly payroll costs*
*Includes salaries, commissions, tips, state and local taxes,  health insurance, retirement, and certain other benefits. 
Specifically excludes foreign employees, FICA and income tax withholdings, and compensation in excess of $100,000 annually for an individual employee.
Payroll costs are averaged over the 12 months preceding loan origination date. Seasonal business can use Feb. 15 – June 30, 2019 or March 1 – June 30, 2019 to create a more accurate average.

Annual interest rate

3.75% for businesses, 2.75% for non-profits No higher than 4%

Term of the loan

Up to 30 years 10 years

Date first payment is due

One year from origination date (accruing interest during the deferment) At least six months from loan origination date (accruing interest during the deferment)

Allowable use of funds

Can be used for financial obligations and operating expenses that could have been met had the disaster not occurred Can cover payroll costs (as defined above), insurance premiums, group healthcare benefits, utility payments,  and interest (not principal) on mortgages or other debt incurred prior to February 15, 2020, rent on any lease established prior to February 15, 2020 

Collateral 

A UCC lien against the business’ assets. A personal guarantee is also required on loans over $200,000 from 20+% owners, managing partners or LPs and managing members of LLCs. No collateral required

Loan forgiveness

Not available Loan forgiveness is available based on the amount spent by the borrower on allowable costs (as outlined above) during an 8-week period after the origination date. 
Loan forgiveness is reduced the business fails to maintain the number of full-time equivalent workers or if compensation of any individual making less than $100,000 per year is reduced by more than 25%. Forgiveness of these loans will not be considered a cancellation of indebtedness for tax purposes.

Do 2019 taxes need to be filed first?

2019 taxes are not needed to apply. You may need to complete IRS form 4506-T, giving the SBA access to your prior tax returns Determined by lender

Length of the application process

3-4 weeks from application to funding Unknown

Are applications open?

These loans are currently available and applications are open.  The SBA has not yet established guidelines with banks for this program. It could be 1-2 weeks or more before this program goes live and begins to accept applications.

What type of business can qualify?

SBA programs are available to small businesses, which have slightly different standards by industry.
Typically, under 500 employees and $35 million in revenue including commonly controlled affiliate companies. 
Sole proprietors, independent contractors, and eligible self-employed individuals.
Businesses and entities with fewer than 500 employees. 
Businesses with fewer than 500 employees per location with a NAICS code beginning with 72 (food services and accommodations)
Certain franchises also qualify for waived affiliation rules. 

 

Disclaimer: These tables are for informational purposes only. We are not liable for any changes in terms and recommend verifying with the lender before applying for either program.