Coronavirus small business relief: Comparing the two main loan programs

How the Paycheck Protection Program is different from an economic injury disaster loan

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The Trump administration is working with lawmakers to provide relief to small businesses, many of which have been forced to close their doors as a result of coronavirus-related protections that have been put into place.

While there are different avenues for relief, there are two key programs at the federal level that small businesses may be eligible for: the Small Business Administration’s economic injury disaster loan program and the Paycheck Protection Program (PPP).

The administration released guidance regarding the Paycheck Protection Program on Tuesday, which was a piece of the massive multitrillion-dollar stimulus bill signed into law last week. PPP includes $350 billion for eligible businesses to put toward payroll expenses, interest on mortgage, rent and utilities. Businesses can begin applying April 3.

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Here’s a summary of the two programs, with input provided by L.J. Suzuki, founder of CFOShare.org:

Who is eligible?

In order to qualify for an SBA economic injury disaster loan, a business must prove substantial economic injury – that it is unable to pay its ordinary and necessary operating expenses. The point of the loan is to help a business ride out a disaster period until normal operations can resume – it applies to situations where there is no physical damage.

In order to qualify for PPP, a business must have less than 500 employees and be affected by the coronavirus. Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.

PPP is designed to incentivize companies to keep employees on staff. It is expected to move cash more quickly than the SBA’s other program, for faster economic relief.

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How much cash can you get?

Economic Injury loan: Up to $2 million

PPP: Up to $10 million, or 2.5 times your total payroll expenses for the loan period

Loan interest rate:

Economic injury: 3.75 percent. Interest rate on the loans will not exceed 4 percent per year and terms will not exceed 30 years.

PPP: The initial rate is 0.5 percent, but it may rise. It is capped at 4 percent.

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Forgiven?

Economic Injury: No

PPP: Yes. Forgiveness covering the first eight weeks of the loan is possible if employers pay their expenses and maintain – or quickly rehire – employees and keep salary levels constant. Seventy-five percent of the amount given must be put toward payroll.

Personal guarantee?

Economic Injury: Yes

PPP: No

Can you apply for multiple SBA loans?

Yes, as long as the loans are being put to different uses.

If you have an existing disaster relief loan through the SBA, it is possible to roll that loan into a PPP loan and have it forgiven as the program allows.

Where to apply:

Economic Injury: SBA.gov

PPP: Through any existing SBA 7(a) lender or any federally insured depository institution, federally insured credit union and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved.

Here’s a look at the information you will need in order to apply.

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