Consultant’s Corner: Economic Injury Disaster Loan vs. Paycheck Protection Program

Q: What is the difference between the SBA Economic Injury Disaster Loan Program and the Paycheck Protection Program? Can I apply for both?

In our previous blog post, we discussed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the SBA Economic Injury Disaster Loan (EIDL) program, and the Families First Coronavirus Response Act (FFCRA).

While not a direct comparison, the information previously provided addresses the fundamentals of both the Paycheck Protection (loan) Program (PPP) and the SBA’s Section 7(b) Economic Injury Disaster Loan (EIDL) program.

The main differences to highlight between the two programs are:

  • The purpose of each program,
  • Potential loan amounts,
  • Potential loan terms,
  • Potential forgiveness,
  • The respective application processes, and
  • The current availability of each.

Purpose

Eligibility for the existing EIDL program is based on economic injury as determined by the SBA, in this case the Coronavirus (COVID-19) outbreak. As part of the CARES Act, the PPP was developed specifically to help small businesses retain their employees during this crisis.

Potential Loan Amounts

The EIDL program provides loan amounts of up to $2M, again, based on economic injury as determined by the SBA (further details regarding loan maximums and borrower eligibility can be found at the SBA’s website). The PPP provides loan amounts of up to $10M based on a business’ average total monthly payroll costs.

Potential Loan Terms

Loan terms under the EIDL program list interest rates for small businesses as 3.75% (2.75% for nonprofits) for up to 30 years. Loan terms under the PPP are listed as 0.5% with a 2 year maturity.

Potential Forgiveness

Under the EIDL program the SBA may provide eligible small businesses with a forgivable emergency grant of up to $10k. Other than this emergency grant, the EIDL does not have a loan forgiveness program. The PPP has established a loan forgiveness program; however, based on the fixed amount of available funds provided by the CARES Act and the likely high subscription rate, these terms are subject to change until further regulation has been put in place by the U.S. Treasury and the SBA. Subject to certain limitations, a borrower may be eligible for loan forgiveness equal to the sum of payroll costs, interest on mortgages, rent, and utilities during the 8 week period beginning on the date of the loan, with the stipulation that at minimum 75% of the amount to be forgiven has been used for payroll costs.

Application Process

The EIDL program and the PPP each have their own application and process. Small business owners submit applications for the EIDL program directly to the SBA and the SBA issues the loan. In contrast, small business owners submit applications for the PPP directly to their local SBA approved lender and the SBA approved lender issues the loan.

Availability

The EIDL program has been in existence and applications can be submitted now. The earliest applications can be submitted to SBA approved lenders participating in the PPP is 4/3/20. The majority of lenders will likely begin processing applications the week of 4/6/20 as they await necessary guidelines from the Trump administration.

Conclusion

Small business owners are likely eligible for both the EIDL program and the PPP and have the ability to apply for both. Borrowers may apply for both loans; however, the PPP loan cannot be used for the same purpose as the EIDL. If the borrower accepts the EIDL loan and qualifies for a PPP loan, the borrower may refinance the EIDL with the PPP loan.

Small business owners can refer to the SBA’s overview of Coronavirus (COVID-19) related guidance and loan resources for small business by visiting the following SBA webpage.

Coronavirus (COVID-19): Small Business Guidance & Loan Resources – SBA

Small business owners that are interested in applying for the EIDL program should visit the SBA webpage provided below.

Disaster Assistance in Response to the Coronavirus – SBA

Small business owners seeking a PPP loan can review the SBA’s overview of the program provided below; however, they should contact their preferred local lender immediately to find out whether that lender is participating in the program and when they can submit an application. Small business owners can utilize the SBA resources provided below to help them identify local lenders in their area.

Paycheck Protection Program (PPP) – SBA

Find Eligible Lenders (PPP)

Taylor Hughes

About Taylor Hughes

Taylor Hughes is a Small Business Consultant with GoSmallBiz.com and holds a Bachelor’s degree in Business Administration and Management from the University of Alabama. He has been part of the GoSmallBiz.com team since 2017. Taylor helped launch an outdoor recreation company near Yellowstone National Park, and has worked in logistics with John Deere.