Updated April 3, 2020
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump on March 27th, 2020. The CARES Act was designed to be an economic relief bill to help keep qualifying small businesses afloat during enforced COVID-19-related closures, boost vital industries and aid American adults and families.
The CARES Act includes a Paycheck Protection Program (PPP) which authorizes federally guaranteed loans to qualifying small businesses. The Small Business Administration (SBA) also offers Economic Injury Disaster Loan Assistance (EIDL) program for US small business owners. The table below is an overview comparison of the two programs. Please contact your Lurie advisor for guidance on your specific situation.
EIDL vs PPP | A comparison of the Economic Injury Disaster Loan and Paycheck Protection Program
EIDL: Depending on the industry, this is determined based on average receipts during the preceding 3 years or average number of employees during the preceding 12 months.
PPP: Business with fewer than 500 full or part time employees will be eligible (unless the covered industry’s SBA size standard allows more than 500 employees), with higher employee limits for hotels, restaurants and other industries approved by the SBA.
EIDL: No cost to apply.
PPP: No cost to apply.
EIDL: $2 million
PPP: 2.5 X borrower’s average monthly payroll cost, based on the trailing 12 months preceding loan origination, up to $10 million. Seasonal employers may elect a different testing period.
Payroll costs include: salary, wages, commission, paid leave, allowance for dismissals, benefits, and state or local taxes and for an independent contractor or sole proprietor, wage commissions, income or net earnings from self-employment. Payroll costs exclude compensation to any single employee or independent contractor in excess of $100k annually and any payments to persons that are not U.S. residents, and taxes imposed or withheld under I.R.C. §§ 21, 22, or 24 for the covered period (2/15/2020-6/30/2020).
PPP: $10 million
EIDL: Collateral Is required on all loans above $200k. The SBA prefers real estate but will consider other assets. The SBA states that is will not decline a loan for lack of collateral, but requires borrowers to pledge what is available.
PPP: No collateral required.
EIDL: Yes, from all owners of 20% or more of company equity
PPP: No personal guarantee will be required.
EIDL: 3.75% for small businesses and 2.75% for nonprofit organizations
PPP: 1.0 %
EIDL: Up to 30 years
PPP: 2 years for loans made before June 5, 2020 (unless the borrower and lender mutually agree to extend to 5 years) and 5 years for loans made after June 5, 2020
EIDL: Principal and interest payments are deferred 12 months. Interest accrues during this period.
PPP: Principal and interest are deferred for 10 months. Interest accrues during this period.
EIDL: Fixed Debts, Payroll, Accounts Payable, Other Bills that could have been paid had the disaster not occurred.
PPP: Payroll, mortgage interest, rent and utility payments, health care benefits*, and interest on other debt obligations.
* costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums.
PPP: Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. Certain borrowers would be eligible for loan forgiveness equal to the amount spent during an 8 week or 24 week period after the origination date of the loan on:
- Payroll costs;
- Interest payment on any mortgage incurred before Feb. 15, 2020;
- Rent on any lease in force before Feb. 15, 2020; and
- Utilities for which service began before Feb. 15, 2020.
The loan forgiveness amount is reduced if the recipient (1) uses more than 40% of the loan funds on approved non-payroll costs, (2) reduces the average number of full-time equivalent employees per month during the covered period below the lesser of (a) the average number of full-time equivalent employees per month from February 15, 2019 to June 30, 2019 or (b) the average number of full-time equivalent employees per month from January 1, 2020 to February 29, 2020, or (3) reduces the salary or wages of any employee in excess of 25 percent of the total salary or wages of the employee. There is an opportunity to eliminate these reductions if the borrower meets certain exemptions for the reduction of FTEs or qualifies for safe harbor by increasing FTEs or salary/wages before June 30 (8 week) or before the end of the year (24 week).
View updated information here.
EIDL: Applicants can have an existing SBA Disaster loan, or other loan and still qualify, but the loans cannot be consolidated
PPP: Applicants can have existing loans, but may not have any outstanding loan or pending application for a loan under Section 7(a) SBA loan for the same purpose and duplicative amounts. Check with your bank before applying for an EIDL in addition to the PPP on or after April 3, 2020.
EIDL: Apply directly to SBA’s Disaster Assistance Program.
PPP: Apply through approved SBA lenders. Generally, it best to contact your current bank or lender for information. However, if your bank does not offer SBA loans or you would like to see other options, there are resources available where you can fill out a form to pre-qualify, here.
Update, As of April 3, the PPP application is available. Click here to see the latest information.
For a list of top SBA lenders, here are additional links to help with your search:
Meet Our Team
Chris has a knack for helping his clients better understand the value drivers, strengths and risks within their organization. He provides impactful services and value to his clients, using a holistic approach of the factors that impact his clients’ businesses: financial, operational and emotional. Being a well-rounded advisor with many areas of expertise, Chris specializes in business and intellectual property valuations for estate and gift taxes, transactions, purchase price allocations and litigation matters.
With more than a decade of federal tax experience, Mike provides advice on federal tax matters. He routinely advises on IRS practice and procedure including examination, appeals, collection, penalty abatement, audit reconsideration, research, captive insurance disclosures, Private Letter Rulings, and other federal tax issues.
Let's Start a Conversation
This article is for your general education, and does not create a client relationship or any service engagement between you and Lurie LLP. The content of this article is based on the best information available, but official guidance, rules, laws and/or updates may change and become out of date. Please contact your Lurie advisor before acting on any of the information contained in this article.
We may provide links to third-party sources for your convenience, but we do not review, control, or monitor the materials on any other websites. Lurie LLP is not responsible for the performance of those websites or for your business dealings with them.