In order to help small businesses during the COVID-19 pandemic, the government has created loan programs to assist with payroll in order to retain employees.

DISASTER LOANS

The two biggest stimulus programs for small businesses are the Paycheck Protection Program (PPP) and the Small Business Administration’s Economic Injury Disaster Loan (EIDL). So how do you know which one is appropriate for you?
Spoiler Alert: Most qualified businesses are eligible to receive both loans.

WHAT IS THE PAYCHECK PROTECTION PROGRAM?
The Paycheck Protection Program is a forgivable loan approved for the use of payroll expenses, rent, mortgage interest, and utilities. With a maximum loan amount of $10 million, there is no collateral or credit check required. The loan terms are 1% for 2 years; 5 years for new loans. Small businesses may apply directly from an approved lender although it is recommended that you apply through a financial institution you already bank with.

WHAT IS THE ECONOMIC INJURY DISASTER LOAN?
The Economic Injury Disaster Loan has a $10,000 advanced grant that will not have to be paid back and is approved for the use of fixed debts, including rent and utilities, accounts payable, and some bills that could have been paid had the COVID-19 disaster not occurred. With a maximum loan amount of $150,000, there is possibly collateral required depending on the loan amount. The loan terms are 3.75% up to 30 years (2.75% for non-profits). Small business may apply via the SBA web site.

CAN A BUSINESS APPLY FOR BOTH PPP AND EIDL LOANS?
Businesses may apply for both loans, but be aware that you cannot use funds for the same purposes (payroll for example). But even still, applying for both loans will help your business during this unprecedented time.

While the EIDL has a $10,000 advanced grant that won’t have to be paid back, the loan will be subtracted from the PPP loan forgiveness amount. That information needs to be declared when you apply for the PPP as well as when you apply for PPP forgiveness.

Because you cannot use funds from the two loans for the same expenses, it is wise to apply the PPP for payroll expenses and the EIDL for all other working capital.

RULES FOR APPLYING FOR DISASTER LOANS?
Anyone interested in applying for an EIDL loan must not be delinquent on an existing SBA loan or loans from another federal agency or payment of any part of a direct federal debt except IRS obligations. You may not apply EIDL funds for relocation costs, refinancing long term debt, repair or replacement of physical damage, repayment of stockholder or principal loans, as well as dividends and bonuses.

WHAT TO KNOW BEFORE APPLYING FOR DISASTER LOANS?
PPP loans only cover payroll per employee up to $100,000 and applies to small businesses with less than 500 employees. Business owners must attest that the coronavirus has impacted their business.

When applying for an EIDL loan, you will need to provide information on your business’ gross revenue and cost of goods sold over the last year.

When applying for the PPP loan, you will need to supply your payroll records or at least know your average monthly payroll expense.