EIDL vs PPP loans: How SBA Coronavirus Business Loans Work

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EIDL vs PPP loans

EIDLs (Economic Injury Disaster Loans) and PPP (Paycheck Protection Program) loans are two funding options for small businesses impacted by coronavirus. The loans are made available through the Small Business Administration (SBA) under the CARES Act. which offers $377 billion in emergency relief funds to U.S. small businesses. EIDLs offer advances up to $10,000 that do not need to be repaid, while PPP loans provide small business loans equal to 2.5 times their average monthly payroll, up to $10 million. Loan forgiveness is available for PPP loans if the business follows specific loan forgiveness rules from the SBA.

Here’s how these two loan types work and how to qualify:

Economic Injury Disaster Loans (EIDL)

How EIDLs Work

The Small Business Administration (SBA) offers EIDLs within days of a successful application. Traditionally, these loans are up to $2 million. A personal guarantee is waived for EIDLs up to $200,000 through the end of the year, while EIDLs of $25,000 or less require no collateral. However, the SBA has created an emergency grant advance for up to $10,000 to quickly help businesses that need the money faster due to impacts of COVID-19. The SBA states that the advances will take as little as three days.

The emergency grant advances will help small businesses overcome any temporary revenue loss as a result of COVID-19 and will not have to be repaid if used for certain business expenses. The amount of the advance depends on the number of employees (at $1,000 per employee).

How Do I Qualify for an EIDL?

You can qualify for an EDIL if your small business:

  • has 500 employees or fewer.
  • has more than 500 employees but meets the SBA’s industry size standards for this pandemic.
  • is organized for profit.
  • operates primarily in the U.S. or contributes significantly to the U.S. economy through taxes or use of U.S. products, materials or labor.
  • is independently owned and operated.
  • is not a dominant business in its field nationally.
  • is a private non-profit organization.
  • is a 501(c)(19) veteran organization.

How to Apply for an EIDL

Apply for an EIDL directly on the SBA’s website no later than December 16, 2020, (or December 21, 2020, in some states). Do not delay your application, as funds are granted on a first come first served basis. The process for the COVID-19 version of EIDLs has been streamlined and should take less than 130 minutes. The first thing you’ll see is a disclosure, which describes the loan in detail and states your information is only collected for eligibility purposes. If you don’t provide all the required information, your application won’t be processed and any false information submitted subjects you to a perjury penalty.

You’ll then be asked to provide the following information for each owner with a 20% stake or more:

  • Social Security Number
  • Birthdate
  • Birthplace
  • Citizenship status
  • Street address

You’ll also be asked for additional information, such as any criminal charges against any of the owners. Before you submit, click the box that states you wish to be considered for up to $10,000 advance. Be sure to double check your information as well so your loan can be approved and funds can be directly deposited into your account. The advance will be forgiven if it is spent on paid leave, maintaining payroll, mortgage or lease payments.

To keep your employees on payroll, consider applying for the Paycheck Protection Program (PPP) too, as you can get funding from both. In fact, an EDIL loan can also be refinanced into a Paycheck Protection Program loan. However, if you use a PPP loan for payroll purposes, you cannot also use an EIDL for payroll if you want the $10,000 advance to be forgiven.

Payment Protection Program Loans (PPP Loans)

How PPP Loans Work

The SBA designed PPP loans to enable small businesses to keep employees on payroll.

The PPP loans are available for up to 2.5 times your average monthly payroll for the year preceding your application. These loans will be forgiven if all workers stay employed for eight weeks and if the funds are used for payroll, rent, mortgage interest or utilities. Any portion of loans not forgiven will be treated as a two-year loan with a 1% fixed interest rate, and payments will be deferred for 10 months (however, interest will continue to accrue over this period).

How Do I Qualify for a PPP loan?

You can qualify for PPP loans if your small business:

  • was operational as of February 15, 2020.
  • has 500 employees or less, regardless of revenue.
  • is a sole proprietorship, does independent contracting or if you are a self-employed individual that regularly carries on any trade or business (including in the “gig economy”).
  • is a non-profit entity under Section 501(c)(3) so long as it has 500 employees or less.
  • is a tribal business that meets the SBA’s size requirements.

The SBA also has complex affiliation requirements, which means a business must aggregate all of its parent companies, affiliates and subsidiaries to determine if said business meets the size requirements and borrowing eligibility. These still apply under the PPP but are waived for:

  • hospitality or food service businesses classified under an NAICS code beginning with 72.
  • a franchise business that has an SBA-assigned franchise identifier code.
  • any business that gets financial assistance from a company licensed under section 301 of the SBA Act of 1958, as amended.

How to Apply for a PPP Loan

Fortunately, you can apply for the PPP Loan through any existing SBA 7(a) lender or federally insured depository institution, federally insured credit union and Farm Credit System institution that’s participating in the Paycheck Protection Program.

Thankfully, Fintech companies like Kabbage make it easy for you to apply for a PPP Loan. Just submit your business information — including payroll filings and certifications necessary for eligibility — and the required documents needed for the PPP loan. We will quickly and securely review your application and calculate how much you can access. If you’re approved, securely connect your bank account, and we’ll deposit your funds when you’re ready.

For more information about PPP Loans, visit our guide to Paycheck Protection Program Loans for frequently asked questions.

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