Economic Injury Disaster (EIDL) Loans VS Paycheck Protection Program (PPP) Loans: What’s The Difference?
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January 7, 2021 – The new stimulus bill has passed. The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program will become available to eligible small businesses in early 2021. This article has been updated with guidance released by the SBA on January 6, 2021.
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.
Table of Contents
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.
PPP loans can reach $10 million and are 100% forgivable if used for approved expenses. EIDL loans can reach $2 million and must be repaid in full.
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 award 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.
How Much Can I Borrow?
You can borrow up to $2 million, depending on the extent of your economic injury, as determined by the SBA. The SBA will determine how much you need based largely on the information you supply about your business — including your business’ gross revenue and cost of goods sold over the last 12 months.
Additionally, you can request an emergency EIDL grant that you do not have to repay. This grant cannot exceed $10,000 or $1,000 per employee. You will receive this much sooner than the bulk of the loan — as soon as a few days after successfully applying, according to the SBA. (In practice, however, businesses report much longer wait times on their EIDL advances.)
What Is The Loan Term Length?
Loan term lengths can be as long as 30 years. You can defer your first payment on the loan for up to a year.
What Are The Rates & Fees?
Interest rates for EIDL loans are 3.75% for businesses and 2.75% for nonprofits. No other rates or fees apply, and there is no prepayment penalty.
EIDL loans less than $25,000 do not require collateral, and loans less than $200,000 do not require a personal guarantee.
Is The Loan Forgivable?
The EIDL loan itself is not forgivable unless you later roll it into a PPP loan, a portion of which may be forgivable. If you receive the EIDL advance/grant, this amount is forgivable as long as you spend it on operating expenses as specified by the SBA.
Am I Qualified?
Most small businesses are eligible for an EIDL loan. The main requirement is that you have 500 or fewer employees. You also need to have been in business since January 31, 2020. Here are a few more things to know about EIDL eligibility:
- Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries
- Businesses cannot be engaged in illegal activities as defined by federal guidelines or lobbying
- Business owners cannot be more than 60 days behind on child support
- Your business cannot be a strip club or casino
- Business owners cannot be currently incarcerated, on parole or probation, subject to any current criminal charges or proceedings, pled guilty to a felony or been placed on parole or probation for a felony within the past five years
- You can’t be delinquent on any other SBA loans
Generally, you will also need at least decent credit to be approved for an EIDL loan.
Note that the deadline for applying for an EIDL loan for COVID-19 has been extended to Dec 31, 2021.
How Paycheck Protection Program Loans Work
PPP loans can be used to cover payroll costs as well as most mortgage interest, rent, and utility costs over the 24-week period after the loan is made. It can also be used for paid sick leave and employee benefits (which fall under the category of payroll costs). The loan is forgivable as long as you maintain your payroll. The main difference between a PPP loan and an EIDL is that you have to spend at least 60% of the PPP loan on payroll expenses.
Also, unlike EIDL loans, PPP loans are not issued directly from the US Treasury. Instead, the funds are issued through an SBA-approved lender (bank or other financial institution), and you apply through this lender rather than through the SBA directly.
With the renewal of the PPP program and SBA guidance released on January 6, 2021, the PPP program now allows for businesses to draw on PPP funds a second time provided they meet a new, more stringent set of guidelines. There are now slightly different rules governing businesses that are drawing upon PPP for the first time versus businesses that are making a second draw.
How Much Can I Borrow?
First Draw
The maximum amount you can borrow is equal to 2.5x your monthly payroll or $10 million, whichever is lower.
Second Draw
The maximum amount you can borrow is equal to 2.5x your monthly payroll or $2 million, whichever is lower. Businesses in the accommodation or food service industries may borrow up to 3.5x their monthly payroll or $2 million, whichever is lower.
What Is The Loan Term Length?
The term length is two years, and you can defer your first payment for six months.
What Are The Rates & Fees?
For any portion of the loan that is not forgiven, your interest rate will be 1%. No collateral or personal guarantee is required.
Is The Loan Forgivable?
The loan is forgivable if you use the loan proceeds as specified — for payroll, rent, and utilities, over a 24-week period — and if you maintain your staff and payroll. If you have to reduce your staff or compensation, you will owe on the loan.
However, PPP loan forgiveness is not all-or-nothing. Many businesses that are not able to maintain payroll (despite their best intentions) will have to repay a portion of their PPP loan but not the whole thing.
Here’s what the US Treasury Department PPP fact sheet says about PPP loan forgiveness:
- Number Of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level Of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
The passage of the Paycheck Protection Flexibility Act offers additional guidance:
- Re-Hiring: You have 24 weeks (not to extend beyond December 31, 2020) to restore your full-time employment and salary levels.
To request loan forgiveness, you need to submit a request to the lender servicing the loan and include documents verifying your employee statuses and pay rates as well as mortgage/rent and utility payments. The lender will then make a decision on forgiveness within 60 days.
Am I Qualified?
Here’s what you need to qualify for a PPP loan.
First Draw:
- You have fewer than 500 employees. Note that independent contractors and freelancers do not count as employees. You cannot include independent contractors and freelancers in your employee count when applying for a PPP loan. Self-employed individuals have a separate PPP loan application process.
- You’ve been in business since February 15, 2020 or you’re a seasonal business that was in operation for any 12-week period between February 15, 2019 and February 15, 2020.
- You’re able to demonstrate the economic impact of COVID-19.
Second Draw:
- You have fewer than 300 employees. Note that independent contractors and freelancers do not count as employees. You cannot include independent contractors and freelancers in your employee count when applying for a PPP loan. Self-employed individuals have a separate PPP loan application process.
- You’ve been in business since February 15, 2020 or you’re a seasonal business that was in operation for any 12-week period between February 15, 2019 and February 15, 2020.
- You have utilized all funds you received from your first draw.
- You are not a publicly-traded company.
- You must show a 25% or greater reduction in revenue comparing any quarter in 2019 to the same quarter in 2020.
The same EIDL restrictions regarding applicants with recent criminal histories and applicants belonging to certain industries also apply to PPP applicants.
In addition to the above, you can consult with your participating SBA lender to find out that lender’s specific requirements for PPP loans, as these requirements may vary somewhat from one lender to the next. PayPal and Square have also both recently announced they have been approved to issue PPP loans, so you may be able to apply through those companies’ respective websites (you may need to set up a Square or PayPal account if you don’t have one already).
Can I Apply For Both?
The short answer is yes, you can apply for both loans, provided you meet the eligibility requirements for both loans. So should you? Just keep in mind the following:
- There are different application processes and documentation requirements for each loan.
- EIDL loans are not forgivable, apart from the EIDL advance, unless you can successfully roll it over into your PPP loan (and even if you do that, it’s possible that not all of the loan will be forgiven).
- EIDL has a higher interest rate than PPP (3.75% vs. 1%).
- You cannot use an EIDL for the same purpose as a PPP loan (payroll in the two months after receiving the loan). However, you can use the EIDL for payroll once you’ve exhausted the PPP after those two months have passed.
- If your business receives both loans or refinances an EIDL into a PPP loan, the EIDL grant amount will be subtracted from the amount forgiven in the PPP loan.
Taking all this into account, you should only also apply for the EIDL if you need it on top of the PPP, and you are OK with starting to repay the loan after a year.
Which Is Best For My Financing Needs?
Read the following to determine which type of SBA loan is best for your business’s financing needs.
Apply For An EIDL Loan If…
- You need help paying your operating expenses (payroll, mortgage, rent, utilities) due to COVID-related business losses
- You understand you must repay the loan (aside from the grant portion)
- You’re not sure if you’ll be able to maintain your business’s payroll under current conditions (even if you receive the loan)
- You have significant operating expenses apart from payroll
Apply For A PPP Loan If…
- You need help covering your payroll over the next 24 weeks due to COVID-19-related business downturn
- With financial assistance to cover eight weeks of payroll, you expect to be able to maintain most or all of your full-time staff
- You understand you can only spend up to 40% of the loan on non-payroll expenses
- You understand you will have to repay some of the loan’s amount if you don’t maintain your payroll
Apply For Both If…
- You need help paying BOTH payroll and other operating expenses (rent, utilities, mortgage, etc.) due to COVID-19-related business losses
- You understand you may have to repay loan proceeds spent on non-payroll expenses (with interest)
- You understand the forgivable EIDL grant is subtracted from the forgivable portion of the PPP loan (i.e., you don’t get the EIDL grant if you also get a PPP loan)
Where To Apply For EIDL & PPP Loans
The EIDL and PPP program have different applications and application processes. Below, you can find out where to apply for each loan.
For An EIDL Loan
You can apply for an EIDL loan right from the SBA’s website. Find the application here: EIDL Loan Application.
Note: If you’re calling the SBA’s 1-800-659-2955 number to check on the status of your EIDL application, make sure to ask for the Tier 2 option, as this pertains specifically to the COVID-19 program. If checking your EIDL status online, you need to find the SBA Assistant at https://disasterloanassistance.sba.gov/s
For A PPP Loan
You can apply for a PPP loan through any participating SBA lender. You cannot apply for a PPP loan directly through the SBA. If you have a business relationship with a bank or credit union, contact them to find out if they are participating in the program. You can fill out PPP applications from the SBA and give them directly to your lender.
Through the SBA, here is the application for first-time borrowers: PPP Application First Time Borrowers.
If you are applying for a second draw, the application is here: PPP Application Second Draw Borrower Application.
Here is our list of preferred SBA lenders, and here is the downloadable PPP application form, which you’ll submit with the help of your lender.
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?
- Your COVID-Affected Small Business Might Be Eligible For SBA Loan Debt Relief Via The CARES Act
- 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.
Shannon Vissers
Shannon is a writer and editor based in San Diego, CA. Shannon attended San Diego State University, graduating in 2005 with a BA in English. She is the former editor-in-chief of SteelOrbis, an online trade publication. Shannon has also published articles for LIVESTRONG.COM, eHow, Life'd, and other websites. She has been with Merchant Maverick since 2015, writing about POS software, small business loans, and financing for women entrepreneurs.
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I am the owner of small insurance agency and on 5/4/2020 I was funded 11,925.00 with a PPP loan. Which I was able to use for about 5 payrolls. Later I applied for an EIDL loan which was funded on August 27, for $6000. I have used this loan for rent, utilities and payroll expenses. Will both amount be forgiven?
This comment refers to an earlier version of this post and may be outdated.
Hi Paola,
It sounds like you’ve utilized the funds as intended. The PPP is forgivable as long as it’s used for qualifying expenses. The EIDL however, is not. If you received an advance/grant that portion does not need to be repaid, but the loan portion will. The only exception is if it is rolled into a PPP loan. I hope that helps!
This comment refers to an earlier version of this post and may be outdated.
I received my $10,000.00 grant but by the time I received the phone call to complete the application, I had applied for and received the PPP loan. I never completed the application for the EIDL. Is this grant still forgivable as long as it was used toward payroll, rent and utilities?
This comment refers to an earlier version of this post and may be outdated.
Hi Nancy,
That’s odd as our understanding is that you can’t apply for just the advance. You can apply for just the loan- or both the loan and the advance. If you are positive that it’s the grant, we explain how the EIDL grant forgiveness works in this post Can My Economic Injury Disaster Loan (EIDL) & Emergency Advance For Coronavirus Relief Be Forgiven? I hope that helps!
This comment refers to an earlier version of this post and may be outdated.
I am a LYFT driver & have been trying to find out 2 things. 1) Can I use EIDL loan to purchase a vehicle? 2) I used Forbearance Program on my mortgage for 3 months, can I use funds to pay this back rather then adding to end of my mortgage seeing that my house is my office?
This comment refers to an earlier version of this post and may be outdated.
Hi Mike,
It is unlikely that you could use it to buy a new car since EIDL proceeds can’t be used toward the acquisition of fixed assets. It’s just meant to cover normal operating expenses. So, you could use it to repair an old car but not buy a new one. We couldn’t find any information on Lyft drivers using EIDL funds to pay their mortgages, though that seems unlikely too. Sorry!
This comment refers to an earlier version of this post and may be outdated.
My husband is getting a $10,000 EIDL loan due to Covid for his home based business which is a sole proprietorship. He is the only employee. It says in the paperwork that the payments begin after one year and the length of the loan is 30 years.
Is this 10,000 forgivable since that is all he is getting?
Also, if not, is there a penalty for paying it off sooner to avoid all the interest?
This comment refers to an earlier version of this post and may be outdated.
Hi Bette,
If specific criteria is met, the loan can be forgivable in part or in entirety. We have a post that explains in detail that you may find helpful.
This comment refers to an earlier version of this post and may be outdated.
Hi. I received an EIDL loan without any grant (advance amount) on 07/13, just a straight loan, grants are no longer given out.
I have now been also approved for a smaller PPP loan. My intent is to use the majority of the money on payroll.
Since there’s no longer a forgivable amount from the EIDL, just the PPP. What are my best options here, to allocate the funds from both loans towards payroll?
Should I use up the PPP first and then tap into the EIDL funds?
There’re also these rules, from which I don’t fall under the refinancing category, due to the receive dates:
An EIDL Loan May Not Be Refinanced with a PPP Loan When:
• The PPP Borrower received the EIDL loan before January 31, 2020 or after April 3,
2020.
A PPP Loan Must Be Used to Refinance the Full Amount of the EIDL Loan When:
• The PPP Borrower received funds from the EIDL loan from January 31, 2020 through
April 3, 2020; and
• The PPP Borrower used the EIDL loan funds to pay payroll costs.
This comment refers to an earlier version of this post and may be outdated.
Hi Nick,
You can definitely use the EIDL and the PPP at the same time. The only exception is you can’t use the EIDL and PPP for the same thing, at the same time. For example, if you’re using the PPP for payroll, you can’t use the EIDL for payroll during the same time period. While the SBA has ended the advance program, the loans can are still eligible for forgiveness.
This comment refers to an earlier version of this post and may be outdated.
I was de ied for the loan will i recieve the grants? If so how long does it take?
This comment refers to an earlier version of this post and may be outdated.
Hi Sudon,
Unfortunately, the SBA announced on 7/11/2020 that they have ended the Advance program. I’m sorry to tell you that. We do have a post on what to do if you were denied that might be helpful. Best wishes!
This comment refers to an earlier version of this post and may be outdated.
i received two deposits. 1,000.00 noted PMT and the other 10,000.00 noted CT on may 27th. this was an EIDL loan. I’ve used the money to pay property taxes, replace a 25 year leaking roof, property insurance and pay for accounting services. all operational costs. i’m confused about the 10,000.00 as a grant. Is this forgivable or not? I’m understanding that anything 10,000.00 and under is grant because it’s being funded by the treasury. MY head is swirling. Number two the forgivable application i’ve seen is inclusive of the PPP which i did not apply for. How or can I apply or what do I NEED TO DO to be forgiven? I already put the money in a seperat account and have all receipts for how i used the funds
This comment refers to an earlier version of this post and may be outdated.
Hi Donna,
The $1000 is likely the advance on your loan. That advance is a grant and does not need to be repaid. Your EIDL loan is the $10k and in order for this to be forgiven it would have to be used as specified in this post on how to get your EIDL loan forgiven. Take a look and. if you have more questions please ask.
This comment refers to an earlier version of this post and may be outdated.
Hi,
I am a sole proprietor and recently approved for both the EIDL and PPP loans. I have accepted the PPP loan, but not the EIDL since I would need both for payroll purposes. However, your article states: “You cannot use an EIDL for the same purpose as a PPP loan (payroll in the two months after receiving the loan). However, you can use the EIDL for payroll once you’ve exhausted the PPP after those two months have passed.” I have not seen this 2-month option listed anywhere else and was wondering if you could share where you actually found this information in the EIDL regulations? I would be able to accept the EIDL if this is actually true. Thank you
This comment refers to an earlier version of this post and may be outdated.
Hi D L,
You can definitely use the EIDL and the PPP at the same time. The only exception is you can’t use the EIDL and PPP for the same thing, at the same time. For example, if you’re using the PPP for payroll, you can’t use the EIDL for payroll during the same time period. I hope that helps!
This comment refers to an earlier version of this post and may be outdated.
How do I know which loan I have received?
This comment refers to an earlier version of this post and may be outdated.
Hi Latoya,
The loan offer should say what kind of loan it is for. If you had a deposit appear in your account without any correspondence, that could very well be the EIDL grant/advance.
This comment refers to an earlier version of this post and may be outdated.
Hello,
I’m a sole proprietor and received a (small) PPP loan May 15 and a (larger) EIDL last week. If I choose the 24-week forgiveness option with PPP do I have to wait til that period ends before using EIDL funds? I can’t afford to not use the EIDL for another 4+ months if that is, in fact, the case.
Thanks for your help!
This comment refers to an earlier version of this post and may be outdated.
Hi Jack,
You can definitely use the EIDL and the PPP at the same time. The only exception is you can’t use the EIDL and PPP for the same thing, at the same time. For example, if you’re using the PPP for payroll, you can’t use the EIDL for payroll during the same time period.
This comment refers to an earlier version of this post and may be outdated.
My husband is the sole owner and only “employee” of our trucking LLC. We normally take a monthly draw from the business to our personal account to pay our house/personal bills.
Because of Covid, flatbed trucking is dead in our area and he hasn’t worked since early March for our business. We applied for the EIDL back in early May but it was turned down because they were only doing agricultural companies then. Because we don’t have employees, we didn’t realize we could apply for the PPP until a couple weeks ago, so we did. The day that it was approved and signed to be funded, we got an email saying that our EIDL was approved and how much did we want to borrow. We only borrowed about half of what we technically could have and also got a $1000 advance with the EIDL.
My concern is how to use both or either properly. I read on another site that you can’t really use PPP for owner draws because it isn’t technically payroll, but we haven’t taken a personal draw from the business since April because there’s no income to the business. We thankfully don’t have many expenses, but do still have insurance, cell phone and internet expenses, and normally would have a $2500 draw/month to pay our personal/household bills. We have been using savings to pay these. Any guidance on where I could find info written for non-legalese speaking people? I did open a separate account and put the PPP and EIDL and Advance funds in it, and haven’t touched either yet till I figure this out! The PPP was funded/deposited on 6/17/2020 and the EIDL on 6/23/2020.
Thank you for any help or direction!!
Heather S.
This comment refers to an earlier version of this post and may be outdated.
Hi Heather!
“If you’re a sole proprietor or independent contractor, self-employment wages, salaries, and commissions not exceeding $100,000 annually also qualify as payroll costs. These costs will need to be proven by submitting payroll documentation.” We detail acceptable documentation in this post on PPP Forgiveness Rules. I also think this post on PPP For Self-Employed would be really helpful.
“You cannot use an EIDL for the same purpose as a PPP loan (payroll in the two months after receiving the loan). However, you can use the EIDL for payroll once you’ve exhausted the PPP after those two months have passed.
If your business receives both loans or refinances an EIDL into a PPP loan, the EIDL grant amount will be subtracted from the amount forgiven in the PPP loan.”
I hope that helps bring some clarity!
This comment refers to an earlier version of this post and may be outdated.
hello. I just got an EIDL loan , do I have to spend the whole amount on any thing related to my business or can I also use it on my personal issues that is not related to the business ? ,
thank you
This comment refers to an earlier version of this post and may be outdated.
Hi Choukri,
EIDL loan proceeds and advances can be used on payroll, paid leave, leases or mortgages, or other operational costs.
This comment refers to an earlier version of this post and may be outdated.
Hello! THANK YOU! I have been looking for this answer! Where can I find in a legal document where it states that you can use the EIDL for payroll once the PPP is forgiven? My situation is a little different. I currently have the EIDL, but have not yet recieved the PPP. I would like to use the EIDL for payroll right now, but did not want to hurt myself if I could not use both for payroll at different times.
Chris
This comment refers to an earlier version of this post and may be outdated.
Hi Christopher,
You can use the EIDL on payroll before getting the PPP, but you’ll need to use the PPP to refinance the EIDL. Any EIDL money spent on payroll can be forgiven under the PPP (as long as everything is properly documented). You can find the exact language in the Rules & Regulations on page 4.
This comment refers to an earlier version of this post and may be outdated.