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Coronavirus Relief Bill: Which Loan Program is Best for Your Business

by Kacie LaCombe

Last week, the Senate passed a coronavirus relief bill adding up to roughly $2 trillion. Luckily, with the relief fund comes two different loan options available to small businesses by the Small Business Administration. While there is a lot of confusion surrounding the differences between the two loans, and if it’s possible to receive both, this blog will break down the details of each to help you determine which is best for your business. 

The TL;DR: The Paycheck Protection Program is restrictive on what you can spend your loan on, but does offer the possibility of loan forgiveness. It’s best suited for companies with significant payroll and employee needs. The Economic Injury Disaster Loan will be most beneficial for those with low payroll or needing funds greater than what you qualify for under the Paycheck Protection Program. Fortunately, with the Economic Injury Disaster Loan, rates are low, payment terms are longer, and the loan can be used to cover more than what’s under the Paycheck Protection Program. 

With that, check out the details of each program and act fast to help find your business the appropriate financial assistance according to your business needs. 

SBA’s Economic Injury Disaster Loan (EIDL)

The EIDL is a program offered directly by the Small Business Administration for qualified businesses impacted by COVID-19 and is already accepting applications. Small businesses can receive up to $2,000,000 to help provide relief for financial obligations and operating expenses that you could normally pay had a disaster not occurred. Loan amounts are decided based on a company’s economic injury and immediate financial needs. 

EIDL Terms 

  • Only available to small business states with SBA approved declarations of disaster. 
  • Interest rate of 3.75% for For-profit companies. 
  • Loan term will not exceed 30 years. 
  • Repayment is decided based on each company’s ability to repay with loan payments due one year after the loan origination date.
  • The loan is not intended to replace lost sales or for business expansion. 
  • There is currently no loan forgiveness available.
  • Ability to request an advance of $10,000. This advance will be distributed within 3 days and does not require repayment. 

EIDL Requirements 

  • Must provide gross revenue for the 12 months prior to the dates of the disaster (January 23, 2020). 
  • Must provide access to your business’ historical tax returns. 
  • Must be a business with no more than 500 employees. 
  • The Small Business Administration will place a UCC lien against the assets of your business as collateral.

 

If you find that the EIDL is the best option for you based on operational expense needs, you can apply for your relief loan now. For further assistance, there is a guide available to walk you through your application process. 

The Paycheck Protection Program (PPP) / The Coronavirus Aid, Relief, and Economic Security (CARES) Act

The CARES Act is the more recent addition to the stimulus bill providing small businesses support during COVID-19 related closures. An element of the CARES Act is the Payment Protection Program (PPP). The PPP provides up to $349,000,000 of federally guaranteed loans to qualifying small businesses. Some refer to the PPP as the SBA 7(a) loan program which essentially provided the framework for the PPP. Under this new loan, small businesses can receive up to $10,000,000. 

PPP Terms

  • Loans can be up to 2.5x the business’ average monthly payroll costs according to the year prior to the loan origination date. 
  • Loan term of 10 years. 
  • Interest rate of 4%.
  • Eligible for loan forgiveness if the business maintains payroll during the crisis or restores wages. 
  • Loan payments can only go towards payroll, healthcare premiums, insurance premiums, mortgage or rent, utilities, and other debt incurred before 2/15/2020. 
  • Loam payments begin 6 months after origin date. 

PPP Requirements

  • Must be a business that was operational on 2/15/2020 and with no more than 500 employees. 
  • No collateral is required. 
  • Depending on the lender, you may have needed to file your 2019 taxes to apply. 

 

If you are in need of assistance more specific to keeping your employees and maintaining your office space, small businesses can begin filling out their application for the PPP loan on Friday, April 3rd. All who are self-employed or considered an independent contractor, can begin their application process on Friday, April 10th. 

 

Depending on your needs, it’s important to act fast. Use these highlighted points of each small business loan and evaluate which relief package will provide the most needed assistance to keep your organization afloat. With over 30 million small businesses and limited funds per program, the longer you take to apply for a loan, the greater your chances of not receiving what you need significantly decrease. 

Changes to the coronavirus relief bill are rolling out quickly and new phases are being introduced frequently. Take advantage of these programs while they’re here and in the event that new programs are not released as the economic situation becomes more clear. 

For more tips on how to prepare your business, read more on a few ways you can begin to recession proof your car hauling business. 

Published on April 23, 2020

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