Paycheck Protection Program PPP Loan vs. EIDL loan: Which One Is Right for My SMB?

Andrea Curry on Mar 31, 2020

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This article was originally published on April 1, 2020, and was last updated on April 20, 2020.

The Small Business Administration is offering 2 types of coronavirus relief loans, and it’s causing some confusion. This article breaks down the loans and helps determine which one is right for you.

The 2 types of loans are:

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $349 billion for small business loans. Loans were made available to small businesses impacted by COVID-19 beginning on April 3, 2020.

The Paycheck Protection Program officially ran out of money on April 16, but Congress is continuing to negotiate $310 billion in additional funds. The PPP saw more than 1.6 million applications flow through 5,000 lenders.

The program has been criticized for its shaky rollout — small business owners and lenders alike were confused by the application process. Many businesses had trouble finding lenders, especially if their business’ bank was not participating in the program or unwilling to accept applications from customers who didn’t have an existing loan with the lender.

Which businesses are eligible for disaster relief loans through the PPP?

A small business with fewer than 500 employees
A small business that otherwise meets the SBA’s size standard
A 501(c)(3) with fewer than 500 employees
An individual who operates as a sole proprietor
An individual who operates as an independent contractor
An individual who is self-employed who regularly carries on any trade or business

How much can I borrow from the SBA?

Loans can be up to 2.5x the borrower’s average monthly payroll costs incurred during the year prior to the loan origination date. However, there is a cap on salaries above $100,000 per year. The maximum loan amount is $10 million.

The PPP loan can be used for:

Salary, wages, commissions, or similar compensation
Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)
Payment for vacation, parental, family, medical, or sick leave
Allowance for separation or dismissal
Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement
Payment of state and local taxes assessed on compensation of employees

These loans may be forgiven if the borrower maintains their payroll during the crisis or restores wages during the 8-week period beginning on the date of the origination of the loan.

Where to apply for an SBA loan

The SBA will administer the loans. Local lenders will determine eligibility and credit worthiness without requiring them to go through usual SBA channels to make the process faster.

A list of approved lenders can be found on the SBA website. Many lenders are limiting PPP eligibility to businesses with whom they have a pre-existing relationship. Fintech lenders — such as PayPal, Intuit, and Square — are also accepting PPP loan applications.

On March 31, the SBA uploaded a PDF sample application for the Paycheck Protection Program.

The SBA Disaster Loan Assistance

The SBA is offering loans under its Economic Injury Disaster Loan Program to qualified businesses impacted by COVID-19. The disaster loan application can be accessed on the SBA website.

The loan application asks for your gross revenue for the 12 months prior to the dates of the disaster (which is January 31, 2020) and the cost of goods sold for the 12 months prior to January 31, 2020.

You can also request $1,000 per employee, or up to $10,000 in advance. This amount can be forgiven.

Besides the $10,000 advance, there is no loan forgiveness for an EIDL loan.

If you did receive an EIDL loan, you can apply for a Paycheck Protection Program loan (see more info below). Then, refinance the EIDL loan into a PPP loan so you could apply for loan forgiveness.

Which businesses are eligible an EIDL?

To qualify for an EIDL, your business must:

Have 500 or fewer employees
Have a place of business in the U.S.
Are a 501(c), 501(d), or 501(e) private nonprofit
Can provide prove of economic injury caused by COVID-19

The loan applies to all 50 states and U.S. territories.

How much can I borrow?

Loans are capped at $2 million. Interest rates for small businesses are set at 3.75% and 2.75% for non-profits. Loan terms can go up to 30 years. If you need immediate relief, you can apply for advance up to $10,000 ($1,000 per employee).

Where to apply

You can apply for an EIDL directly with the SBA. Visit the SBA website to start the process.

EIDL vs PPP loans

wdt_ID	Details	Economic Injury Disaster Loan	Paycheck Protection Program
1	Originator	Small Business Administration (Direct)	Bank, Credit Union, or a Technology Lender that is SBA approved and does SBA 7(a) Loans
2	Where can I apply for the loan?	https://covid19relief.sba.gov/#/	https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp#section-header-6
3	What businesses are eligible?	Small businesses with 500 or less employees	Small businesses that have been in operation on February 15, 2020 with 500 or less employees. Individuals who are sole proprietorship or an independent contractor.
4	Maximum Loan Amount	$2 million (Determined by the SBA based on gross revenue and cost of goods sold in the previous year). Applicants can request a forgivable advance of $1,000 per employee, capped at $10,000. Applicants are not required to pay if they are denied a loan.	Lesser of 2.5x average monthly payroll costs of last 12 months OR $10 million
5	Loan Forgiveness?	No	Yes, on portions of the loan
6	Annual Interest Rate	3.75% for businesses and 2.75% for non-profits	Capped at 4%
7	Terms	Up to 30 years	10 years
8	Grants	Up to $10,000	None
9	First Loan Payment Due	1 year after origination date	6 months after origination date
10	What Can the Loan Be Used For?	Expenses that could have been met if the disaster not occurred	Payroll, healthcare premiums, insurance premiums, mortgage payments, rent, utilities, and other debt

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About the author

Andrea Curry

Andrea Curry is the former managing editor of Workest. She’s an award-winning journalist and financial wellness advocate. Her first job was at a nature center, where she was in charge of feeding the wildlife.