Summary Comparison of COVID-19 EIDL and PPP Loan Programs

04.02.2020

The Small Business Administration (SBA) released on April 1, 2020 the Payroll Protection Program (PPP) loan application form and an accompanying FAQ. Businesses may apply for a PPP loan beginning Friday, April 3. Independent Contractors/Sole Proprietors may apply for a PPP loan beginning Friday, April 10.

Can I Apply for and Receive an Economic Injury Disaster Loan (EIDL) Loan and a PPP Loan from the Small Business Administration (SBA)?

Although technically possible, an applicant will need to demonstrate clearly that the two loans will be used for different purposes. If you already applied for and received an EIDL loan related to COVID-19 between January 31, 2020 and April 3, 2020, you will need to disclose this on your PPP loan application and it is likely to slow the processing of your application. Each loan program should be considered for its applicability to a business, including whether to apply for both an EIDL loan and a PPP loan to fund separate qualifying costs and expenses of the business.

If you already applied for and received an EIDL loan, you should be able to refinance the EIDL loan into the PPP loan for loan forgiveness purposes, if desired, if you can meet the PPP loan requirements. Remaining portions of the EIDL loan, for purposes other than those laid out in loan forgiveness terms for a PPP loan, would remain a loan (i.e., not forgiven).

You can withdraw an application or turn down either (or both) a PPP or EIDL loan if you decide you do not want the loan.

Is there a Fee to Apply for the Loans?

There is no fee to apply for either the PPP or EIDL loan. 

PPP Loan Summary

In summary, the PPP loan provides:

• Small business loans of the lesser of (i) $10 million loan amount and (ii) 2.5 times average monthly payroll costs incurred during the applicable 12-month period.
• With interest rates equal to 0.5% for a 2 year loan term. Interest will accrue for the duration of the loan, and continue to accrue on any principal portion that is not forgiven.
• Upfront repayment deferment of 6 months to provide relief before the recovering business has to make payments.
• No personal guarantees of the owners and no collateral.
• Principal loan forgiveness to the extent used on certain payroll, rent, interest, utility costs in the first 8 weeks after the loan is made. (Note that the portion of any single employee’s salary over $100,000 per year is not a qualified cost for PPP loan forgiveness, and a maximum of 25% of the PPP loan may be used to pay mortgage interest, rent payments or utility costs and be forgiven.) Businesses that have had to furlough or lay people off can rehire those employees by June 30, 2020 and use the PPP to cover foregone payroll and payroll going forward subject to the PPP loan requirements.

The PPP loan is applied for through banks and the lending decision is made by banks underwriting the loans for approval. The PPP loan application can be found here. The deadline to apply is June 30, 2020 and loan requests will be fulfilled on a first come, first served basis. Most local banks will participate in the PPP loan program, but it is suggested to reach out to your lender(s) to confirm their participation in the PPP loan program and secure any consents needed from your current lender for additional indebtedness. Demand for these loans is expected to be very strong.

EIDL Loan Summary

In summary, the EIDL loan program provides:

• Up to a $2 million loan amount, with the EIDL loan size depending on the borrower’s demonstrated economic injury and ability to repay. The SBA Office of Disaster Assistance will determine your loan amount, and the general aim is to provide about 6 months of operating expenses.
• 3.75% fixed rate (2.75% for nonprofits) for up to a 30 year loan term.
• An automatic 11-month upfront deferment of loan repayments.
• Most loans up to $200,000 will not require a guarantee, but are not forgivable except for advanced amounts treated as an advance grant. EIDL loan amounts over $200,000 are guaranteed. Otherwise, these loans will require collateral and the usual guaranties.
• EIDL loans can also be used on payroll and other defined operating expenses, but the use of such loan funds is not restricted to such uses except for advanced amounts up to $10,000. EIDL cannot be used for the same purposes as a PPP loan received by an applicant. (Note that EIDL loans can be used to fund salary over $100,000 per year.)
• EIDL loans include the option to request an immediate grant of up to $10,000 that is available in as soon as three days after applying. If you receive an emergency EIDL grant award that amount would be subtracted from the amount forgiven under any PPP loan that you also receive. Additionally, if you received an emergency $10,000 advance but ultimately do not receive an EIDL loan, the $10,000 advance does not need to be repaid.

The EIDL loan is applied for through SBA and the approval determination is made by SBA Office of Disaster Assistance. The EIDL loan application can found here and the deadline currently is December 31, 2020. 

For additional information please see the Hirschler COVID-19 Resource Center, including the articles entitled “Loan Forgiveness Under the Stimulus Act: Is Now the Time To Apply for Your First SBA Loan? (And Other Loan Benefits of the CARES Act)” and “Key Provisions of the New SBA Payroll Protection Program (PPP) Loan Application”. Hirschler is here to assist during this difficult time, please contact us with any questions or to assist with any loan or other questions for responding and maintaining your business through this period.

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The Hirschler Recovery Team: It may soon be a rare business enterprise that is able to insulate itself from the negative economic effects of the COVID-19 pandemic. While we hope the economy will rebound once the pandemic begins to abate, until then, the Hirschler Restructuring and Creditors Rights Group stands ready to assist clients in addressing the financial challenges of these economically unsettled times. Whether you are facing the loss or interruption of business, challenging financing relationships, the need to downsize or restructure, or other creditors’ rights issues, the Hirschler team will work with you toward a successful outcome. Contact us to understand your options and devise a recovery strategy that protects your business and financial health.