There are two main loan programs to help small business owners through the COVID-19 crisis:
Economic Injury Disaster Loans (EIDLs)
SBA Cares Act Paycheck Protection Program Loans (PPPs)
Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions.
Maximum Loan Amount
EIDL: $2 million ($10,000 Advance)
PPP: $10 million
Grant / Forgiveness
EIDL: The Economic Injury Disaster Loan includes an emergency grant of up to $10,000 to be made within three days of application. These grants do not have to be repaid as long as funds are used for:
providing paid sick leave to employees unable to work due to the direct effect of the COVID–19;
maintaining payroll to retain employees during business disruptions or substantial slowdowns;
meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
making rent or mortgage payments; and
repaying obligations that cannot be met due to revenue losses.
PPP: If you get one of these loans, you can request forgiveness of the principal portion of the loan for the eight week period after you get the loan that covers:
Payroll costs
Interest on a mortgage
Rent
Utilities
No more than 25% of the forgiven amounts may be for non-payroll costs. Your loan forgiveness will be reduced if you decrease your full-time employee headcount. It will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annually in 2019. You may also receive forgiveness for additional wages paid to tipped workers. There is a provision that allows you to rehire employees to qualify for forgiveness.
Interest Rate
EIDL: 3.75% or 2.75% for non profits.
PPP: 1% on any remaining balance after forgiveness
Repayment Period
EIDL: up to 30 years
PPP: 2 years for any balance not forgiven
Who Qualifies?
EIDL: To qualify, you must be
a small business, cooperative, ESOP or tribal business with 500 or fewer employees;
An individual who operates under as a sole proprietorship, with or without employees, or as an independent contractor; or
A private non-profit or small agricultural cooperative;
Your business must be directly affected by COVID-19
Where to Get These Loans
EIDL: SBA COVID-19 Disaster Assistance Portal
PPP: A number of lenders will make these loans. However, not all lenders will offer them to all borrowers. There may be geographic restrictions, for example, or some lenders may choose to make larger loans.
Personal Guarantee
EIDL: Only for loans above $200,000
PPP: No.
Collateral Requirements
EIDL: Yes for loans over $25,000
PPP: No
Payment Deferments
EIDL: Payments are deferred for a year.
PPP: Payments are deferred for at least six months.
Allowable Use of Funds
EIDL: In addition to the use of funds for the grant listed above, EIDLS are working capital loans may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion. Funds cannot be used to pay down long-term debt.
PPP: Loan proceeds may be used for:
payroll costs;
costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
employee salaries, commissions, or similar compensations;
payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
rent (including rent under a lease agreement);
utilities;
interest on any other debt obligations that were incurred before the covered period
refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
Credit Requirements
EIDL: A personal credit check is required for all owners with 20% or more ownership. A business credit report from Dun & Bradstreet is standard on Disaster Loans. However, if your application is turned down you can still keep the $10,000 advance.
PPP: None is required
Can I Apply For EIDL and PPP?
You can apply for both. But you can’t “double dip” and get funds from both loan programs for the same purpose. Specifically the legislation states that a borrower who has taken out an Economic Injury Disaster Loan for purposes other than payroll costs between January 31, 2020, and the date Paycheck Protection Program Loans are first made available are still eligible for a Paycheck Protection Program Loan as long as it is not used for the same purposes. In addition, you must refinance an EIDL received through April 3, 2020 with a Paycheck Protection Program Loan.
Steve Kallam
(757) 857-1880
Virginia Accounting Services
I’m grateful for our chance to serve you and your business — and we are dedicated to its success, in every season.
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