The Difference Between the SBA Economic Injury Disaster Loan Program and the New Paycheck Protection Program Loan Guarantee

04.06.20 07:55 PM By Forsite Benefits



By Grant Schilling, Business Development at Forsite Benefits & Wellness


The purpose of this article is to explain the difference between the SBA Economic Injury Disaster Loan Program and the new Paycheck Protection Program Loan Guarantee.


The EIDL program is designed to give businesses working capital, cash flow relief by providing long term, low-interest loans.


On Friday 3/27/20, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. CARES is a $2 trillion package, which specifically allocates $10 Billion for EIDLs AND $350 billion for Paycheck Protection Program Loan Guarantee Program (PPPLs) to help small businesses.


There are many more components of the CARES ACT relating to Personal, Corporate and State funding by the CARES Act. This article focuses solely on Small Business. For a good video summary of the entire CARES Act watch:


{WATCH VIDEO} Small Business Loans Expected to Start Friday.


For a more in-depth CARES summary - {READ ARTICLE}


The PPPL Guarantee is significantly different from the EIDL program because PPPLs are potentially Forgivable, require no Personal Guarantees or Pledged Collateral.


PPPLs are received through a local bank and Guaranteed 100% by the SBA. EIDLs are made directly from the SBA to small businesses.


ELIGIBILITY AND TERMS OF THE PPPL GUARANTEE:

  • Offered to small businesses with fewer than 500 employees, select types of business with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(C)(19) veteran organizations.
  • Self-employed, sole proprietors, freelance and gig economy workers are also eligible to apply.
  • Loans are given up to a maximum of $10 million, or 2.5 times the average monthly payroll costs, including wages for employees making under $100,000, as well as expenses for paid sick leave, healthcare and other benefits during the 1-year period before the date on which the loan was made.
  • The maximum interest rate under this program is 4%.
  • The loan term is up to 10 years.
  • No personal guarantee or collateral is required for the loan.
  • Payments are deferred up to 12 months. 2300 Riverside Drive Green Bay, WI 54301 | P: 920-471-0000 | E: info@forsitebenefits.com
  • Part of this loan may be forgiven and not counted as income to you, if it’s spent during the first eight weeks on operating expenses.

USE OF PPPL PROCEEDS:

  • Payroll Costs including the following:
    • Wages, salaries, Commissions, cash tips,
    • Payment for vacation,
    • Parental, family, medical, or sick leave,
    • Health insurance premiums,
    • Retirement benefits,
    • Payments to sole proprietors, independent contractors not to exceed $100,000 in one year.
  • Continuation of health care benefits for employees during paid sick, medical, or family leave.
  • Interest payments on a mortgage obligation (not principal) and/or rent.
  • Utilities.
  • Interest on any debt prior to the covered period.

FORGIVENESS REQUIREMENTS:
  • Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000.
  • Rent pursuant to a lease in force before February 15, 2020.
  • Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020.
  • Group health insurance premiums and other healthcare costs.

Significant to note that Eligible Uses of PPPL proceeds is not the same as the amount that maybe forgiven. After receipt of a PPPL you will need to apply again for loan forgiveness.

Here is a great checklist prepared by the US Chamber of Commerce.

It addresses:
1. Am I Eligible?
2. What Banks need?
3. How much can I borrow?
4. How much will be forgiven?

{VIEW CHECKLIST}


Both the EIDL and PPPL programs can provide help to struggling businesses. You can use the loan proceeds to pay a variety of working capital —payroll, rent, utilities, etc. However, PPPLs have more favorable terms with Loan Principal Forgiveness, No Personal Guarantees and No Collateral.


Apply! The demand will be high so if you need funding now, or think you may need it in the future, you might as well apply now. You’re under no obligation to take the loan. There are no guarantee fees, servicing fee or prepayment fees. Contact your bank for further details.


If you have any questions about the programs, please email or call Grant Schilling gschilling@forsitebenefits.com | 920-593-1271