COVID-19 Information Center

What is Better – The Paycheck Protection Program Loan, or the Economic Injury Disaster Loan?
March 31, 2020 (published) | April 30, 2020 (revised)
Raphael Moore, J.D., LL.M.
VIN General Counsel

CARES ACT UPDATE 4/24/2020

The Small Business Administration will resume accepting PPP loan applications on Monday, April 27 at 10:30 am EDT from approved lenders on behalf of any eligible borrower.

Information updated on April 3, 2020

 - Availability of PPP 
 - PPP interest rate
 - Payment deferral for PPP
 - PPP forgiveness

Under the recently passed CARES Act, a new loan program was added to the SBA arsenal of loans. Called the “Paycheck Protection Program” (also known as a “PPP loan”), it has a refundable component whereby a business that meets specific requirements does not have to pay some of the loan proceeds back. At the same time, the CARES Act also expanded the SBA’s existing Economic Injury Disaster Loan program (also known as “EIDL”), to increase eligibility and better the terms. Both are discussed here. But in an attempt to provide a side-by-side comparison for the VIN community, here is a comparison of the two.

Availability: EIDLs are available now.  PPP loans are available now through SBA approved local financial institution.  You can apply for an EIDL now and for a PPP loan later when they become available. Even if you are approved for the EIDL, you normally can wait up to 60 days to accept the offer. You can’t actually draw on both for the same purpose (e.g., for the same payroll costs during the same period of time). If you are offered an EIDL and later are offered a PPP loan for the same period, you can decide which to accept. You can also accept the EIDL, and later refinance it with the PPP proceeds.

Application Process: The EIDL is funded by the SBA directly, has a well-established process, and takes 2-3 weeks plus a few days for funding. You don’t need your 2019 return, and although the SBA can look at historical data, all decisions are supposed be made solely on your credit score – or a method to establish your ability to pay. This is supposed to make the process quicker. The PPP loans, on the other hand, are funded by financial institutions who provide SBA loans – what they will require is yet to be determined and will be based on the specific lender.

Interest Rate & Term: The EIDL is set at 3.75% with a repayment term of up to 30 years.  Important Update: The April 2 SBA guidelines set the interest rate on the PPP loan to 1.0% and the payment term to 2 years (note this is on the lower end of the "not to exceed" 4% with a repayment term of up to 10 years that the Act allows).

Payment Deferral: EIDL provides a deferral on your first payment of up to 1 year.  SBA guidelines provide a 6 month deferral for PPP loans.

Amount: The EIDL is limited to $2,000,000 but has a “quick” $10,000 advance that should be available within 3 days. The PPP has a maximum of $10,000,000, and is based on 2.5 times average payroll.  Important Update: SBA's draft application instruction tell the borrower to “use the average monthly payroll for 2019," although the Act says that the maximum PPP loan is based on “payroll costs incurred during the one-year period before the date on which the loan is made.” 

Collateral & Guarantee: The PPP loan is advantageous in not requiring either. The EIDL will trigger a lien against your business assets for loans greater than $25,000, and a personal guarantee for loans greater than $200,000.

Usage of Proceeds: The EIDL is much more forgiving. You can use the funds for essentially all operating expenses and obligations. The PPP loan, on the other hand, is limited to payroll costs (wages over $100,000 are not eligible), utilities, and certain rent and interest debt/mortgages.

Forgiveness: Here the tables are turned completely.  EIDL offers no forgiveness option. PPP loans offer 100% forgiveness provided you meet strict guidelines. See more details here. Note that if you receive the quick advance under the EIDL, and later get a PPP loan, the amount of the advance will reduce the amount you can get by way of loan forgiveness.  Not more than 25% may be attributable to non-payroll costs (no longer just a guidance)

  

Summary Table

 

Economic Injury Disaster Loan (EIDL)

Paycheck Protection Program (PPP)

Availability

Apply now at https://www.sba.gov/funding-programs/disaster-assistance; can refinance later with PPP

Apply now through SBA approved local financial institution

Application Process

Funded by SBA; 2-3 weeks; based on credit score

Funded by participating banks; paperwork and timeline TBD

Interest Rate & Term

3.75%/30 yr

1.0%/2 yr (lower end of what Act allowed: max 4%/10 yr)

Payment Deferral

12 months

6 months

Amount

Up to $2M; quick $10K advance within 3 days

2.5 times average payroll up to $10M plus any EIDL taken between 1/31/2020 and 4/3/2020

Collateral & Guarantee

Lien against business assets if loan > $25,000; personal guarantee if loan > $200,000

None

Usage of Proceeds

Broad use (operating expenses)

Limited to payroll (with salary cap), utilities, and certain rent and interest on debt/mortgage

Forgiveness

None

Yes, provided strict guidelines met.  Not more than 25% may be attributable to non-payroll costs



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