COVID disaster loans (EIDL) vs. paycheck protection program (PPP) loans

On December 22, 2020 Congress passed the new stimulus bill which includes new Paycheck Protection Program loans and new EIDL grants along with other small business relief. Read more about that legislation and apply for a new PPP loan here.

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)

On April 23, 2020 Congress authorized an additional $310 billion in funding for PPP loans and $60 billion for EIDL.

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 (PPP) Loans.

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 COVID Economic Injury Disaster Loan includes an emergency grant of  “not more than $10,000” that is supposed to be made within three days of application. It currently provides $1000 per employee and requests are generally taking weeks to process. 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 portion of the loan that covers:

• Payroll costs
• Interest on a mortgage
• Rent 
• Utilities 

No more than 40% may be used for nonpayroll expenses. Your loan forgiveness will be reduced if you decrease your full-time equivalent employee headcount and/or salaries and wages. 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, and there are exceptions for businesses unable to return to prior staffing levels. 

Read: How to Apply for Forgiveness for your PPP loan

Interest rate

EIDL: 3.75% or 2.75% for non profits.

PPP: 1% on any remaining balance after forgiveness

Repayment period

EIDL: up to 30 years 

PPP: 2 years for any balance not forgiven. The PPP Flexibility Act provides a 5-year term for any loans made on or after June 5, 2020. (Lenders may extend a 5 year repayment term for PPP loans made prior to that date.)

Who qualifies? 

EIDL: To qualify, you must be 

• A small business, cooperative, ESOP or tribal business with 500 or fewer employees;
• A small businesses that meets SBA size standards
• 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, or small businesses that meet SBA size standards; 
• 501(c)(19) veteran’s organizations  or tribal concerns that meet the SBA size standards; 
• 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

EIDL: SBA COVID-19 Disaster Assistance Portal

PPP: Nav helps match borrowers to SBA lenders and agents for PPP loans. There is no fee for this service. Fill out your PPP application now

Personal guarantee

EIDL: Only for loans above $200,000 

PPP: No. 

Collateral requirements

EIDL: Yes for loans over $25,000

PPP: No 

Funding timeframe

EIDL: The grant of up to $10,000 is supposed to be made within three days of application though to date no one has been funded that quickly. The loan disbursement of up to $25,000 (if approved) may take weeks due to record loan volume. 

PPP: Loans are processed by lenders then must be approved through the SBA. Once approved by the SBA, they must be funded within ten calendar days.

Payment feferments 

EIDL: Payments are deferred for a year. 

PPP: Payments are deferred until loan forgiveness is determined.

Allowable use of funds

EIDL: In addition to the use of funds for the grant listed above, EIDLs are working capital loans that 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 refinance 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); 
• utilities; 
• 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

Credit requirements

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 for loan amounts above $200,000. 

PPP:  None is required, however, and few lenders appear to have checked credit for PPP loans.

Frequently asked questions about EIDL vs. PPP 

Can I apply for EIDL and PPP?

You can apply for both. But you can’t  “double dip” and use funds from both loan programs for the same purpose. 

Can I get 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. Separately, a payroll tax deferral provision allows employers to defer the deposit and payment of the employer’s share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes.

Businesses cannot receive both the Employee Retention Payroll Tax Credit and a Paycheck Protection Program Loan. However, the PPP Flexibility Act allows employers and the self employed to get PPP and the Payroll Tax deferral.

Which is better for my business: EIDL or PPP? 

You may be eligible for both. 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.