The EIDL v. PPP Showdown

“Hey, I’m on this website …….”, “How do I get some of this 350B?”, “If we borrow the money do, we really have 30 years to repay?” “Can I really get money for my business and not pay it back?”, “What do you mean there are two programs? Which one should I take? Why not both?”

This is the first in a series of posts about how small businesses can survive and thrive in the age of COVID-19. The Economic Injury Disaster Loan Program (EIDL)/Payroll Protection Program (PPP) comparison was going to be the 2nd or 3rd one. Due to the volume of urgent calls and emails the last four days and the level of confusion out there, I decided to start with this one. Much of that confusion was my own. I got myself un-confused enough to compare these two programs in a helpful way.

Here’s a side-by-side of these two (click to enlarge):

So, which one do you think you should take? In general, the PPP has more going for it, but it’s not necessarily a slam dunk.

The PPP is really saying, “Hey, Dummy, we want to pay two months of your payroll and rent! What are you waiting for?”. What’s even more remarkable is the fed isn’t going to tax you when they forgive the loan (I think this is unnecessary and a HUGE mistake, but you don’t care about that). Since not losing money is superior to borrowing money, I really like the grant component of the PPP.

The risk to the borrower is much better with the PPP. While both loans have much looser underwriting requirements than what is typical for the SBA, the EIDL is tougher to get as it requires that substantial injury be incurred. The PPP can be used more prophylactically.

Additionally, the PPP rewards the rehiring of employees. This opens the door for a more aggressive plan that takes advantage of both better unemployment benefits for your team and the payroll cost grants. I’ll write more about this soon.

The mechanism for the PPP doesn’t exist yet, but it looks very close and they say they will be taking applications by Friday.

However, for businesses that have been absolutely crushed by this virus, the EIDL might turn out to be the better option. If your business has been highly damaged, you it seems you could qualify for more $ under the EIDL. While EIDL proceeds will have to be paid back, if you expect a protracted recovery it seems likely you can negotiate a long repayment schedule. This along with the low interest rate should keep your loan payments manageable. You can also participate in both programs if you use the funds for different. While EIDL’s were taking around 3 weeks before and may be taking longer now, you can get $10,000 advanced in just a few days (ahead of the loan approval) and if you use these funds for the specified reasons, you won’t have to pay back the advance. The EIDL can be applied for online, while the PPP applications will have to go through banks that are SBA accredited.

Other unknown, but important considerations:

  • While the PPP officially starts Friday, the banks may not be able to hit the ground running. According to one source, the banks are not getting final guidance on the PPP program until Friday. They may not have decided how much of this paper they want on their books. I spoke to one bank today, and with so many branches closed, their loan officers are working out of their homes. Does it make sense to apply for the EIDL instead or apply for both (remember you have to have different uses for the funds from each program).
  • Is the PPP program going to run out of money? If so, how fast? If they run out of funds, will there be more?

Bottom line, if you’re leaning toward the PPP, I’d reach out to your banker today and get in queue. You can get a jump on things by downloading the application now. It’s available on our website

More to come…

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