Economic Injury Disaster (EIDL) Loans VS Paycheck Protection Program (PPP) Loans: What’s The Difference?

Wondering what the difference is between Economic Injury Disaster Loans (EIDL) and Paycheck Protection Program (PPP) loans? Or need help deciding which (or both) type of SBA coronavirus loan your business should apply for? Read on to compare/contrast these two different Small Business Administration loans for small business coronavirus relief and decide which is better for your needs, so you can apply for it.

While EIDL and PPP may be over, many small businesses qualify for the employee retention tax credit. This tax credit could mean up to $26,000 per employee you had during the pandemic. Here are the best ERC companies to make applying for the ERC easy.

EIDL VS PPP Loans: What’s The Difference?

Businesses affected by COVID can apply for loans through the EIDL and PPP programs, which were funded by the CARES Act in 2020 until the funds ran out in August. The $900 billion stimulus package passed in late December revives and restructures a number of COVID-related relief programs, including PPP.

EIDLs can reach $2 million. While the main part of the EIDL has to be repaid, the $10,000 EIDL advance is automatically forgiven. PPP loans can reach up to $10 million and are 100% forgivable if the borrower follows loan forgiveness rules laid out by the SBA.

The EIDL is meant to help businesses cover six months of operational expenses. You do have the pay the money back, eventually. You can, however, also apply for an EIDL grant through the EIDL program. This grant doesn’t have to be paid back and awards up to $1,000 per employee, up to a maximum of $10,000.

PPP loans can also be used for operational expenses, but their primary purpose is to cover eight weeks of payroll. To qualify for forgiveness, you must spend at least 60% of the loan on payroll expenses. You can also use a portion of the loan to cover mortgage, rent, or utility expenses. As of 2021, the remaining 40% of the funds can additionally be used to cover necessary software expenses, property damage from civic unrest, necessary supplier costs, and worker protection expenses like personal protective gear and barriers. The amount you can borrow depends on your payroll expenses.

You can apply for and receive loans from both the EIDL and PPP programs as long as you meet the qualifications for both loans and use the loan proceeds differently. For example, you can use the PPP for payroll and the EIDL to cover other operational expenses. Previously any money you received through an EIDL grant was deducted from the amount of your PPP loan that would be forgiven. That’s no longer the case, making it possible to apply for both an EIDL grant and PPP loan without penalty.

How Economic Injury Disaster Loans Work

An EIDL loan can be used on payroll costs, employee benefits, fixed debts (such as mortgages, rents, or leases, accounts payable), and other bills. If you receive the forgivable grant, you need to spend it on those same expenses within eight weeks of receiving the grant — i.e., in the amount of time that it will likely take before the main loan comes through.

Also called “Working Capital Disaster Loans,” EIDL funds are issued directly from the US Treasury, and you can apply right on the SBA’s website.

Here is our list of preferred SBA lenders.

More SBA Resources For Small Businesses Affected By COVID-19

At Merchant Maverick, we are closely following the news and government resources available to aid small businesses. As follows are some further resources we’ve put together regarding EIDL, PPP, and other SBA programs for small businesses affected by COVID-19:

• How SBA Economic Injury Disaster Loan (EIDL) Emergency Advances Work & Where Your Small Business Can Get One
• Round 2 PPP Loans Explained: Rules, Requirements, & Where To Apply
• When Will My Paycheck Protection Program Loan Be Funded?
• The Best SBA Lenders For Small Businesses (& How To Choose The Right Lender For Your Needs)

In addition to the above, you can find even more resources in our dedicated coronavirus (COVID-19) business hub, which we update daily.