The COVID-19 pandemic hit the world extremely hard and many small businesses were put in a precarious position as a result.
While the situation appeared bleak, a large number of smaller companies received emergency EIDL and PPP loans to keep operations running smoothly.
However, despite how common they are, there’s still lots of confusion as to how these loans work and what the difference between the two is.
What Are EIDL Loans?
Loan amounts can go as high as $2 million, although the most prominent aspect of EIDLs is the $10,000 totally refundable advance to small businesses that are in immediate need of emergency cash flow assistance.
Additional advances can be allotted depending on special circumstances and the number of employees at a company, with a potential $500,000 allotment available (or roughly $1,000 per employee).
What Are PPP Loans?
The primary goal of PPP loans is to keep any employees on a company’s payroll employed for eight weeks or more during periods of reduced revenue. Any money used to ensure income security of employees is considered to be forgivable, although in the event that a loan amount is not forgiven, it is to be paid back at 1% interest.
What’s The Difference Between The Two?
EIDLs come directly from the U.S. government treasury, whereas PPP loans come from private financial institutions, although such loans are overseen by federal authorities. The two loans are also used for different purposes, with EIDLs focused on general business expenses, while PPP loans specifically target payroll.
However, the biggest difference has to do with forgiveness. According to Lantern by SoFi, an online marketplace for loans, “EIDL loans themselves must be repaid, but Targeted EIDL Advances are potentially forgivable.” This means that most of an EIDL must be paid back as a loan, although the conditional monetary advance doesn’t have to be. By contrast, a PPP loan can be forgiven so long as 60% of it is used exclusively for payroll purposes.