A Comparison of the Paycheck Protection Program and Economic Injury Disaster Loans
Paycheck Protection Program (PPP) loans have taken all of the spotlight recently, but you don’t want to overlook the Economic Injury Disaster Loan (EIDL) as an option. Read on below for more details on the EIDL program as well as registration information for Part II of our webinar, “The CARES Act and the Benefits for Small Businesses” on April 8th at 10:00am EST. This webinar will share what our team has learned about the process of the PPP loan and calculations, as well as discuss the EIDL program and some other FAQs.
The CARES Act, signed into law on March 27, 2020, has been an ever evolving piece of legislation that continues to move and change like playdough in the hands of a child. Specifically, a lot of the changes over the past week have been with the implementation of the Paycheck Protection Program (PPP) loans that the federal government has put in place in order to get working Americans back to work and on the payroll of small businesses, with the thoughts of being ready to ramp up business again as this crisis calms and slows in the future. Many businesses have or will be applying for these loans. This has been a hot topic for many businesses and will certainly be over the next week as applications continue to be filed with local SBA 7(a) provider banks and lending institutions.
While the PPP will be a definite shot in the arm to many businesses and will help with payroll and other business operating costs, one other SBA loan program has been somewhat lost in the shuffle but could provide greater and more long-term stability to a business during the pandemic crisis.
The Economic Injury Disaster Loan (EIDL) is a tool the Federal Government typically uses for natural disasters within the United States to help small businesses recover from floods, hurricanes, and tornadoes, to name a few. These are traditional long-term, low interest rate loans for businesses to support the working capital needs of the business. The difference this time around is with the CARES Act, some of the restrictions on these loans have been greatly loosened in order to provide this money to businesses to support longer term cash and business needs.
A couple of noteworthy points about this loan to really consider as you analyze the near term and longer term needs of your business:
- 30-year note.
- Fixed interest rate of 3.75% for businesses and 2.75% for non-profits.
- “Emergency” cash advance available of $10,000 upon application.
- Distributed within 3 days.
- Does not go against the loan value – cash considered a “grant” and does not need to be repaid.
While there are other requirements and benefits of this loan, the option of having longer term debt service to cover “Business Related Obligations and Operating Expenses,” as it is outlined in the CARES Act, can provide a business with an option to pay liabilities and operations of the business that the PPP loan will not cover.
Click here for a comparison of both loan programs.
While the PPP has the advantages of loan forgiveness, a one percent interest rate, no collateral, and no personal guarantees; the EIDL program offers long-term debt with attractive terms, the proceeds of which can be used for more than just payroll and general operating expenses, and you have the ability to receive emergency advanced cash, and a one-year deferment on debt payments. These are all very attractive options for a business that needs capital and financing for more than an eight-week period.
Business Owners Can Apply for Both Loans
As long as the proceeds of both loans are used for different purposes, business owners can have both loans at the same time. However, if the proceeds of an EIDL loan – that was accepted between February 15, 2020 and June 30, 2020 – are being used for payroll and other similar operating costs as outlined in the PPP, the EIDL loan would need to be refinanced with the PPP loan by adding the outstanding loan amount to the payroll sum.
When considering your short-term and longer term lending options, keep in mind the EIDL loan and look at a cash flow and economic analysis of both programs and evaluate the benefits to your business in order to determine what the best option is for you.
April 8th Webinar: The CARES Act and the Benefits for Small Businesses – Part II
McKonly & Asbury will follow-up our first webinar on “The CARES Act and the Benefits for Small Businesses” with Part II taking place this Wednesday, April 8, 2020 at 10:00am EST.
Many of our clients and friends have applied, or are in the process of applying, for the Paycheck Protection Program (PPP) loan under the CARES Act. We have learned a lot over the past several days about the process and calculations, and we will be spending the hour sharing what we have learned as well as answering some FAQs. We will also discuss the SBA’s Economic Injury Disaster Loan (EIDL) program. David Blain and Mark Heath, Partners with McKonly & Asbury, will provide critical information for you to stay in front of the CARES Act and other programs that will help you get back to business.
You can register here: https://register.gotowebinar.com/register/9032378477082338061.
At McKonly & Asbury, we are striving to stay on top of and provide the most up-to-date and relevant information to the business community. To learn more about these programs, please feel free to contact our team at covid19@macpas.com. Please also visit our COVID-19 Resource Center (macpas.com/covid-19) to get up-to-date information including articles, resources, and links to numerous organizations and helpful websites.
Questions on submitting your PPP loan application or the forgiveness process?
Our team stands ready to assist you through the PPP loan application and forgiveness process. Do not go at it alone. Ensure you are submitting the right information and receiving the highest forgiveness amount possible. Visit our PPP Loan Consulting webpage by clicking here to request assistance or support.
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although McKonly & Asbury has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
