EIDL vs PPP loans: How SBA Coronavirus Business Loans Work

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?

EIDLs, or Economic Injury Disaster Loans, are a type of emergency loan provided by the Small Business Administration (SBA) that attempts to cover much of the lost revenue caused by economic disasters.

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).

The most common question asked is do EIDL loans have to be repaid
? The answer is mostly yes, although if payroll expenses are paid for using the money, then that part of the loan can be rolled into any PPP loans a business has, which is forgivable provided certain conditions are met.

What Are PPP Loans?

Payment Protection Program (PPP) loans are potentially 100% forgivable loans that can be received through federally recognized lending institutions.

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?

Both loans are incredibly similar, but ultimately the difference between the two comes down to where the loans come from, what the money’s used for, and the level of forgiveness.

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.

Truly Knowing The Difference

Keeping a business running is difficult even under the most favorable conditions, but it becomes especially problematic when loan terms are confusing and hard to follow.

Understanding the fundamental difference between different loan types is absolutely crucial for achieving the best long-term outcomes for business health and future operation.
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