In an effort to combat the negative impact COVID-19 has on small businesses, the CARES Act is offering low interest rate loan programs for working capital, two of which are very popular.

The first one is the Paycheck Protection Program (PPP). The second one is the Economic Injury Disastrous Loan (EIDL).

Let us unpack these two for you.

Paycheck Protection Program (PPP)

Small businesses, with fewer than 500 employees, can receive the lesser of $10M or 2.5 of your 2019 average monthly payroll cost. This program does not require personal guarantee or collateral. The loan can be paid over the span of 2 to 5 years, with a capped 1% fixed rate by statute.

Any qualified small businesses or non-profits, including self-employed individuals, can benefit from this program.

Applications can be submitted to any approved lender. The first payment is automatically deferred for up to 6 months. Don’t wait too long to apply, as this loan is only available until August 8, 2020.

The best part is that if the fund is used for paying rent, mortgage interests, leases, payroll costs, utilities or transportation for the first 24 weeks after the fund becomes available, this part will be forgiven. No Cancellation of Debt (COD) income.

To maximize your loan forgiveness, you need to spend at least 60% of the loan on payroll cost. The other 40% can be used for non-payroll cost.

Economic Injury Disastrous Loan (EIDL):

This program is available for any small business with less than 500 employees. You can receive up to $2M with no personal guarantee for the first $200K.

Furthermore, you can request an advance of up to $10K ($1K per employee), as an emergency fund. You will receive the advance even if the loan is denied.

This program is available until December 31, 2020. Payments are automatically deferred for the span of up to 6 to 12 months. Applicants do not need to pay back the advance. The permitted use of EIDL is broad. The fund can be used to pay for working capital, inventory or equipment purchases.

However, if you apply for both loans (PPP & EIDL), the advance will be credited towards the forgivable portion of your PPP. Also, EIDL can be refinanced into PPP, if it was taken before April 3 and used for payroll cost.

You can apply directly on the SBA website.

SBA Application

Which one should I apply for?

This depends on your needs and business plan. Obviously, if you are forced to shut down and terminate your employees, there are no benefits in getting the PPP fund. However, if you partially suspend your operations and furlough your staff, but plan on rehiring them before December 31, 2020, then either the PPP or the EIDL can help you stay afloat until your operations are restored. In conclusion, you can apply for both loans at the same time, you just are not able to use them for the same expenses.

We are here for you.

Contact us to talk about the challenges that you or your business may be facing.

If you need help coming up with a plan on how to manage your cash flow, figuring out loan qualifications or budgeting during this difficult time, feel free to call, or schedule a complementary consultation with one of our dedicated CPAs.