The US Government recently passed a $2 trillion stimulus package called the CARES Act, which includes support for small businesses in the form of Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program. These loans have significant differences, but both are designed to help businesses that are being impacted by the COVID-19 crisis and have less than 500 employees.
While there is much to learn about both programs and information is changing rapidly, we have put together a list of resources along with a summary of highlights to help you determine which, if any, loan is appropriate for your business, as well as to help you evaluate the potential program benefits. Please do not rely solely on this information for your financial decisions, as we encourage you to do your own additional research and to consult your financial advisors for guidance.
Highlights Related to Payroll Protection Loans
The Payroll Protection Program is primarily designed to help businesses maintain their payroll and staffing levels. Businesses are eligible to receive 2.5 times their prior average payroll and the interest on the loans is 1%. The loans convert to grants and do not need to be repaid as long as the business meets specific requirements related to the use of the funds for maintaining the current workforce.
Businesses that were in operation as of February 15, 2020 can apply for the Payroll Protection Program through the SBA, their own bank, or any other FDIC bank. Paperwork such as average monthly payroll and previous year’s tax documents are required, so businesses should review the information and gather the required materials in advance.
No personal guarantees or collateral is required for the loan.
Businesses with fewer than 500 employees are qualified for the loan. In addition, the program has been expanded to include sole proprietors, Individual contractors (1099 workers), 501c3, veteran’s organizations or tribal concerns.
Highlights Regarding EIDL
EIDLs are primarily designed as working capital loans to be used to pay fixed debts, payroll, accounts payable and other bills that could have been paid had the disaster not occurred. EIDL loans include an emergency grant of up to $10,000 which can be converted to PPP and as such does not need to be repaid as long as the funds are used for maintaining workforce payroll. EIDL can also be used to pay sick leave for employees unable to work due to direct contact with COVID-19, maintaining payroll to retain employees, meet increased costs associated with obtaining materials from other sources due to disruptions to the supply chain, making rent or mortgage payments, or repaying obligations that cannot be met due to revenue loss.
One advantage of the emergency grant of up to $10,000 through EIDL is the funds are supposed to be available within 3 day of filing the application. Please note this is the goal or intent of the program and that only $10,000 can be forgiven if converted to a PPP.
EIDL loans are issued at about 4% interest rate for up to $2 million and are repaid over a 30 year period. Loans are available through the SBA COVID-19 Disaster Assistance Portal. Loans over $25,000 require collateral, and loans over $200,000 require a personal guarantee.
EIDLs are available to small businesses, cooperative, ESOP, or tribal businesses with less than 500 employees. In addition, individuals that operate as a sole proprietorship, independent contractor, private non-profit or small agricultural cooperative are eligible for a loan. Businesses must have been in operation as of January 31, 2020.
Here are some important resources to help you do additional research about EIDL and Paycheck Protection Program loans.
NAV – EIDL vs Paycheck Protection Program Loans
Smart Asset – EIDLs and Payroll Protection Program Loans
US Chamber Town Hall and Article
SBA Web Site
SBA Application for EIDL
SBA Application Paycheck Protection Program