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The Economic Injury Disaster Loan (EIDL SBA-7b) vs. the Paycheck Protection Program (PPP SBA-7a)

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Following the government’s declaration of a national emergency to combat the Coronavirus (COVID-19) pandemic, the Small Business Administration (SBA) is offering solutions to help small businesses in all US states, Washington D.C. and other US territories cope with the impact.  The Economic Injury Disaster Loan Assistance (EIDL) program and the Paycheck Protection Program (PPP).

The EIDL offers loans up to $2 Million with access to a $10,000 advance (the Emergency Economic Injury Grant) within three days of applying for an EIDL. The advance is available once you have applied for an EIDL but must be requested and does not need to be repaid.

The PPP went into effect on March 27, 2020 when President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The stimulus bill includes a loan program to aid small businesses during mandated COVID-19 closures which authorizes up to $349 billion of federally guaranteed loans to qualifying small businesses. This new loan is based on the SBA’s current 7(a) loan program and will make forgivable loans of up to $10 million available to businesses that qualify.

Small businesses are not limited to only one of the SBA loan programs. Borrowers may apply for both the EIDL and PPP loans however, the PPP loan cannot be used for the same purpose as the other SBA loan(s). If you have an EIDL loan and then qualify for the PPP loan, you have the option of re-financing the EIDL loan under the PPP in order to take advantage of the PPP’s loan forgiveness provisions.

 

Let’s look at a side by side comparison of the two programs.

 

EIDL (SBA 7b) PPP (SBA 7a)
What is the covered period?
  • 1/31/2020 – 12/31/2020
  • 3/1/2020 – 6/30/2020

 

Who is eligible to apply?
  • Small business (500 employees or less) and private non-profits; businesses with no employees or independent contractors are eligible

 

  • Small business (500 employees or less) and 501(c)(3) non-profits that were in business as of 2/15/2020 and must have, as of that date, employees for whom they paid salaries and payroll taxes, or paid independent contractors

 

What is the maximum loan amount?
  • Loan amount up to $2 Million with a $10,000 advance grant component available within 3 days of applying (with no loan forgiveness)
  • Loan amount is the lesser of $10 Million or 2.5 times the average prior year monthly payroll costs, mortgage, rent and debt (with possible loan forgiveness)

 

What is the interest rate of the loan?
  • Interest rate of 3.75% for businesses and 2.75% for non-profits
  • Interest rate not to exceed 4% for businesses and non-profits

 

What is the loan term?
  • Loan term not to exceed 30 years with a possible 1-year deferment and no pre-payment penalty

 

  • Loan term not to exceed 10 years with a possible deferment of at least 6 months, but not to exceed 1-year and no pre-payment penalty

 

What sort of collateral or personal guarantee are required?
  • Collateral is required but loan will not be denied just because there is no collateral
  • Loans of $200,00 or less require no personal guarantee and loans greater than $200,000 require personal guarantee from all 20% owners with no guaranty fees

 

  • No collateral is required, the loan is backed by a 100% guaranty from the SBA and there are no guarantee fees

 

How can the loan be used?
  • Proceeds can be used for most businesses related expenses apart from refinancing, expansion or growth

 

  • Proceeds can be used for most businesses related expenses apart from refinancing, expansion or growth

 

How do I apply?
  • Applications are submitted through SBA.gov and are taking 3 days for advance grant disbursement and 3+ weeks for first loan disbursement

 

  • Applications are submitted through an approved SBA Lender (banks and credit unions) and approval is expected to be several days

 

 

If you have any questions regarding, or are interested in applying for, the Economic Injury Disaster Loan Assistance (EIDL) program or the Paycheck Protection Program (PPP), please schedule a consultation. We would be happy to assist you with the process.

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