For small business owners hit hard by the Coronavirus Pandemic, the CARES Act still has funds available after the second round of financial relief, and offers several SBA programs to offset the negative economic impact. Two that have been in the news are: Payment Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). These loans also benefit the self-employed.
The additional funds include $310 billion to fund the Paycheck Protection Program (PPP) and an additional $60 billion to fund Economic Injury Disaster Loans (EIDL).
The first and most important step is to contact your banking partner. While the SBA is administering these loans, they will be serviced by banks, credit unions and SBA-approved lenders. Each lender is prioritizing by their current customers.
The second step is to make it a priority to apply, if you haven’t already. Don’t delay, funds are available on a first come, first served basis.
PPP vs EIDL – How do the Loans Compare?
These are two separate programs and the benefits of each depend on your business and situation. PPP allows businesses borrow up to $10 million in loans that are 100% forgivable if they do not lay off any employees or if they rehire employees they’ve already laid off.
The EIDL allows businesses borrow up to $2 million in loans and includes a grant of up to $10k. Read our FAQs as follows for more information on each loan.
What is the Paycheck Protection Program (PPP)?
The primary purpose of the Paycheck Protection Program is to cover payroll. For a self-employed person, payroll includes paying yourself for services you perform. If you have employees, the primary benefit of PPP is geared toward protecting your employees and a portion of this loan can be forgivable.
If your business banking partner is a smaller, community bank, it’s important to know that $125 billion of the additional $310 billion in funding will be set aside to support smaller banks. Specifically, Community Development Financial Institutions (CDFI) who service smaller businesses, many of which are minority and women-owned businesses.
What are the PPP Loan Forgiveness Rules?
Updated June 5th 2020: On June 5th, a new bill was signed into law by the President to expand the SBA PPP loan forgiveness rules. Learn more about these changes in our latest post on PPP Loan Forgiveness.
To be forgiven, the loan must be used for payroll costs, rent, utilities, and interest on mortgages. At least 60% of the forgiven amount MUST have been used for payroll.
A few key stipulations of the loan forgiveness rules include the employer maintaining staff or rehiring laid-off employees and keeping salaries intact. If headcount is reduced or salaries and wages decrease, loan forgiveness will be reduced.
It’s important to understand the instructions and fill out the PPP loan forgiveness application. This application needs to be submitted to the PPP lender you are working with.
Here’s a high-level summary of some of the key changes to the PPP Loan forgiveness rules from June 5th:
- Borrowers have the option to extend the 8-weeks to 24-weeks for payroll costs to retain and rehire employees
- The 75% required to be used on payroll expenses has been reduced to 60% of the total loan amount. In addition, the cap for forgivable, non-payroll expenses has increased from 25% to 40%
- The June 30th deadline for penalties and calculations for reductions in workforce has been extended to December 31st
- Additional exceptions where the borrower made good faith effort and can document one of the following situations:
The employer unable to rehire former employees or similarly qualified new employees, or the business was unable to restore business operations due to federal health guidelines and/restrictions related to COVID-19
- Extended loan repayment period from 2 years to 5 years. This maintains an interest rate of 1%
- Borrowers will be eligible for a 2-year deferral of employer’s share of Social Security payroll taxes
Download the instructions and application directly from the SBA website: PPP Loan Forgiveness Application
Q. What can PPP be used for?
Payroll, employee salaries, mortgage interest, rent & utilities, interest on debt (occurred before February 15, 2020).
Q. How much can I qualify for with PPP?
2.5x your businesses average monthly payroll.
Q. What are the terms for PPP?
No payments for the first 6 months. Thereafter; 1% fixed APR for a total 2-year term.
Q. How do I apply for PPP?
As a small business owner, it’s important to contact your FDIC-insured bank, credit union or approved SBA lender immediately to submit your application.
If you already applied through your banking partner, be sure to confirm your original application is still in the system. Each has its own requirements, such as having business checking account.
What if you don’t have a business checking account, or the bank that has your business checking account doesn’t take your application?
SBA’s website lists their district offices near you, and each district office has a website and Resource Guide for its district. This Resource Guide should include a list of local SBA lenders in the district. You can call or visit those banks’ websites to see which bank will take your application for the Paycheck Protection Program.
Q. What Is the deadline for applying for a PPP loan?
With $130 billion still unspent as part of the Payment Protection Program, the Senate has cleared legislation to extend the current deadline for applying for a PPP loan to August 8, 2020. This allows small business owners who have not yet applied more time to submit an application. In addition, discussions have already started in Congress in support of another coronavirus relief bill to help businesses continue to navigate the economic volatility due to COVID-19.
Q. How much of PPP is forgivable?
Up to 100% upon approval.
What is an Economic Injury Disaster Loan (EIDL)?
If you are self-employed and do not have employees, this may be a good option for you. The federal Small Business Administration (SBA) runs the Economic Injury Disaster Loan (EIDL) program directly. A part of the loan may be forgiven (up to $10k).
Q. What can EIDL be used for?
Payroll, fixed debts, accounts payable, other expenses that you are unable to pay directly due to the Covid-19 impact.
Q. How much can I qualify for with EIDL?
Up to $2 million.
Q. What are the terms for EIDL?
3.75% APR for up to a 30-year term.
Q. How do I Apply for EIDL?
An additional $60 billion to fund Economic Injury Disaster Loans (EIDL) was part of the $484 billion additional relief package approved in late April.
Apply online at covid19relief.sba.gov. It doesn’t cost anything to apply.
On the application, you can check the box to be considered for an advance before your loan is finalized. You will need to provide a bank routing number and account number for them to deposit the loan advance.
Q. How much of EIDL is forgivable?
Up to $10k available as an emergency grant, upon approval.
The SBA will determine how much loan advance they will give you, and when they will send the loan advance. If you receive a loan advance, the advance won’t have to be repaid. The loan advance may be $10,000, but it may be less.
Q. Can I apply to Both PPP and EIDL?
For more information, visit The SBA has a hotline to help answer questions 1-800-659-2955, 7 days a week from 7:00a.m. to 9:00p.m.
As of publish date, while the information provided in this article is intended to be accurate, it should not be considered legal advice. These programs are rapidly evolving and we cannot be held responsible for any errors or omissions. Please contact your local bank, SBA and U.S. Treasury websites for updated information. You should also consult with your tax, legal or financial advisor to make the right choice for your business.
COVID-19 Relief for Small Business, U.S. Small Business Administration