COVID loans

COVID Disaster Loans vs. Paycheck Protection Program Loans

This article was updated on April 3, 2020 to clarify that there is no guaranteed amount for the EIDL advance/grant. We want to correct original guidance we gave regarding the $10,000 grant—it’s a common misconception, but after reading the law and hearing from some who have applied for the grant, we want to clarify that the advance is up to $10,000—you are not guaranteed a full $10,000 advance on your EIDL.

There are two main loan programs to help small business owners through the COVID-19 crisis: 

  • Economic Injury Disaster Loans (EIDLs)
  • SBA Cares Act Paycheck Protection Program Loans (PPPs)

These loan programs have some significant differences, and many small business owners are confused. In the first part of this article, we spell out the basic program requirements, and in the second, we answer some frequently asked questions about Economic Injury Disaster Loans (EIDL) versus Paycheck Protection Program Loans (PPP).


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Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and financial advisors. 

Maximum loan amount

EIDL: $2 million

PPP: $10 million

Grant/forgiveness

EIDL: The Economic Injury Disaster Loan includes a $10,000 emergency grant to be made available within three days of application.

These grants do not have to be repaid as long as funds are used for: 

  • Providing paid sick leave to employees unable to work due to the direct effect of the COVID–19 
  • Maintaining payroll to retain employees during business disruptions or substantial slowdowns   
  • Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains
  • Making rent or mortgage payments
  • Repaying obligations that cannot be met due to revenue losses 

PPP: If you get one of these loans, you can request forgiveness of the principal portion of the loan for the eight week period after you get the loan that covers:

  • Payroll costs
  • Interest on a mortgage
  • Rent 
  • Utilities 

Your loan forgiveness will be reduced if you decrease your full-time employee headcount. It will also be reduced if you decrease salaries and wages by more than 25 percent for any employee who made less than $100,000 annually in 2019. You may also receive forgiveness for additional wages paid to tipped workers. There is a provision that allows you to rehire employees to qualify for forgiveness.

Keep in mind, you may qualify for a larger amount of debt that may be forgiven under the Paycheck Protection Program Loan. 



Interest rate

EIDL: 3.75 percent (or 2.75 percent for non profits)

PPP: 0.5 percent on any remaining balance after forgiveness

Repayment period

EIDL: Ten years 

PPP: Two years for any balance not forgiven

It’s expected that most PPP balances will qualify for forgiveness, which explains the shorter repayment period. 

Who qualifies?

EIDL: To qualify, you must be 

  • A small business, cooperative, ESOP or tribal business with 500 or fewer employees
  • An individual who operates under as a sole proprietorship, with or without employees, or as an independent contractor; or
  • A private non-profit or small agricultural cooperative 
  • Your business must be directly affected by COVID-19

PPP: The following businesses may be eligible: 

  • Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees 
  • A 501(c)(19) veteran’s organization or tribal concerns that meet the SBA size standards
  • Sole proprietors or independent contractors
  • Businesses in the food or hospitality industry may be eligible on a per location basis; normal affiliation rules are waived for franchises or businesses receiving financial assistance from an SBIC.

Must be in business by

EIDL: January 31, 2020 

PPP: February 15, 2020

Where to get these loans

EIDL: SBA COVID-19 Disaster Assistance Portal

PPP: A number of lenders will make these loans. However, not all lenders will offer them to all borrowers. There may be geographic restrictions, for example, or some lenders may choose to make larger loans. 

Personal guarantee

EIDL: Only for loans above $200,000 

PPP: No 

Collateral requirements

EIDL: Yes for loans over $25,000

PPP: No 

Funding timeframe

EIDL: The $10,000 grant is to be made within three days of application. The next disbursement of $25,000 may take a few weeks due to record loan volume. 

PPP: These loans will become available beginning April 3 for small businesses and sole proprietors and April 10 for independent contractors and self-employed individuals. Fast processing is expected, but will depend on how quickly lenders can ramp up to process and fund the loans. 

Payment deferments

EIDL: Payments are deferred for a year. 

PPP: Payments are deferred for at least six months, and up to one year at the lender’s discretion. 

Allowable use of funds

EIDL: In addition to the use of funds for the grant listed above, EIDLS are working capital loans may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion. Funds cannot be used to pay down long-term debt.

PPP: Loan proceeds may be used for: 

  • Payroll costs 
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • Employee salaries, commissions or similar compensations
  • Payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
  • Rent (including rent under a lease agreement)
  • Utilities
  • Interest on any other debt obligations that were incurred before the covered period

Credit requirements

EIDL: A personal credit check is required for all owners with 20 percent or more ownership. A business credit report from Dun & Bradstreet is standard on Disaster Loans. However, if your application is turned down, you can still keep the $10,000 advance. 

PPP: There is no word yet on credit requirements for these loans, though they are expected to be relaxed. 


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Frequently asked questions: EIDL and PPP

Can I apply for EIDL and PPP?

You can apply for both. But you can’t  “double dip” and get funds from both loan programs for the same purpose. Specifically, the legislation states that a borrower who has taken out an Economic Injury Disaster Loan for purposes other than payroll costs between January 31, 2020, and the date Paycheck Protection Program Loans are first made available are still eligible for a Paycheck Protection Program Loan as long as it is not used for the same purposes. In addition, you may also be able to refinance the EIDL with a Paycheck Protection Program Loan.  

Can I apply for PPP and the payroll tax credit?

There is a payroll tax credit of up to 50 percent of qualified wages for certain businesses whose operations have been fully or partially suspended by a government order or whose gross receipts in a quarter have fallen by at least half compared to a similar quarter the year before. 

Your business cannot receive both the Employee Retention Payroll Tax Credit and a Paycheck Protection Program Loan. 

Which is better for my business: EIDL or PPP?

Ultimately, this is an individual decision that will depend on a number of factors, including how much you qualify for, how you plan to use the funds and whether you expect to benefit substantially from forgiveness under PPP. 


This article originally appeared on Nav.com by Gerri Detweiler

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