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Paycheck Protection Program vs. Disaster Loan: Which One Is Right for My SMB?

Know the difference between the SBA Disaster Loan Assistance and Paycheck Protection Program, and what is right for your business

The Small Business Administration is offering 2 types of coronavirus relief loans, and it’s causing some confusion. This article breaks down the loans and helps determine which one is right for you.

The 2 types of loans are:

The SBA Disaster Loan Assistance

The SBA is offering loans under its Economic Injury Disaster Loan Program to qualified businesses impacted by COVID-19. The disaster loan application can be accessed on the SBA website.

The loan application asks for your gross revenue for the 12 months prior to the dates of the disaster (which is January 31, 2020) and the cost of goods sold for the 12 months prior to January 31, 2020.

You can also request up to $10,000 in advance.

At this time, there’s no loan forgiveness for an EIDL loan.

If you did receive an EIDL loan, you can apply for a Paycheck Protection Program loan (see more info below). Then, refinance the EIDL loan into a PPP loan so you could apply for loan forgiveness.

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocates $349 billion for small business loans. Loans are available to small businesses impacted by COVID-19.

Loans can be up to 2.5x the borrower’s average monthly payroll costs incurred during the year prior to the loan origination date. The maximum loan amount is $10 million.

The PPP loan can be used for:

  • Payroll

  • Healthcare premiums

  • Insurance premiums

  • Mortgage or rent

  • Utilities

  • Other debt

These loans may be forgiven if the borrower maintains their payroll during the crisis or restores wages.

The SBA will administer the loans. Local lenders will determine eligibility and credit worthiness without requiring them to go through usual SBA channels to make the process faster.

On March 31, the SBA uploaded a PDF application for the Paycheck Protection Program.

U.S. Treasury Secretary Steven Mnuchin said on Sunday the emergency loan program will start on Friday, April 3. The White House is working with the Small Business Administration to accelerate the start of the program.

“Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day,” Mnuchin said in a news release on March 31.

“The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”

EIDL vs PPP loans


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