In such a short period of time the vast majority of states in our country have issued a shelter in place order, something that as Americans we could not even imagine possible. Many business owners are scrambling to keep up with the ever changing dynamics that this pandemic has brought on. Businesses are either having to run their operations remotely, or only able to run a partial operation, or even having to make the choice to close their doors completely.
In this economic decline the government has developed many different resources/assistance programs, but because these programs are coming out at such a fast pace it may be difficult for business owners to decide which program fits best for what they need. The Small Business Administration (SBA) first offered The Economic Injury Disaster Loans and Loan Advance (EIDL). When the CARES Act was passed on March 27, 2020 the Paycheck Protection Program was created. On April 3rd, 2020 these loans were made available to business owners through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other financial relief options are The SBA Express Bridge Loans and SBA Debt Relief.
In this blog you will find information on how these options compare and contrast with one another. Hopefully helping you make an educated decision on what is best for you and your business.
Paycheck Protection Program
EIDL Loan Advance
SBA Express Bridge Loans
SBA Debt Relief
This loan program provides loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan. Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.
This loan advance will provide up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties.
Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.
The SBA is providing a financial reprieve to small businesses during the COVID-19 pandemic. The SBA will automatically pay the principal, interest and fees of specific existing loans.
How Do The Eligibility Requirements Differ?
Comparing PPP Loans to EIDL Loans
- Both are loan programs put in place for small businesses experiencing financial hardships due directly from the COVID-19 pandemic.
- Both loans may be used to pay payroll, the PPP loan is specifically meant for this purpose (to encourage employers to keep workers on payroll).
- There is NO COST to apply for either loan
- Neither loan is intended to replace lost sales, profits, or cost for expansion.
- Borrowers can apply for both loans but CANNOT USE FUNDS FOR THE SAME PURPOSE. For example, you cannot use both loans to cover the same payroll.
- You can apply directly online through the SBA website link. Applicants DO NOT need to go to the bank to apply.
- Applicants may also complete paper loan applications downloaded from www.sba.gov/disaster to be mailed to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
- Disaster loan information and application forms may also be obtained by calling the SBA’s Customer Service Center at 800-659-2955
(800)-877-8339 for the deaf and hard-of-hearing) or by sending an email to firstname.lastname@example.org
- YOU WILL HAVE TO APPLY WITH A LENDER
How much can be borrowed and what for?
- The maximum unsecured loan amount is $25,000 and WILL NOT REQUIRE COLLATERAL.
- Loans more than $25,000, general security interest in business assets will be used for collateral instead of real estate
- The maximum EIDL is a $2 million working capital loan at a rate of 3.75% for businesses and 2.75% for non-profits with up to a 30 year term.
- FUNDS MAY BE USED TO:
- Pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred.
- Loans are not intended to replace lost sales, profits or for expansion.
- Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.
- Loan is to cover payroll cost, mortgage, lease and utility payments. Most importantly these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payroll afterward.
- INCLUDED PAYROLL COSTS:
- Salary, wage, commission, or similar compensation
- Payment of cash tip or equivalent;
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for the provisions of group health care benefits,
including insurance premiums
- Payment of any retirement benefit
- Payment of state or local tax assessed on the compensation of the employee
- EXCLUDED PAYROLL COSTS:
- Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020
- Payroll taxes, railroad retirement taxes, and income taxes
- Any compensation of an employee whose principal place of
residence is outside of the United States
- Qualified sick leave wages for which a credit is allowed under section
7001 of the Families First Coronavirus Response Act (Public Law 116–
5 127); or qualified family leave wages for which a credit is allowed
under section 7003 of the Families First Coronavirus Response Act
What will lenders will be looking for?
- Collateral will play a role in loans amounting over $25,000. Although it is not a factor that will determine eligibility it is something The SBA will take into account if possible.
- No collateral necessary.
- The borrower will be using the loan proceeds to retain workers and maintain payroll or make mortgage, lease and utility payments
It is important to recognize the differences between these two loans upon accepting the funds. Consider what your business will be using the funds on and whether or not you are prepared to repay.
With the Paycheck Protection Program Loan (if funds are used on what was discussed above) a borrower is eligible for loan forgiveness. The amount forgiven is what the borrower spends during the 8 week period beginning on the date the loan originated.
FUNDS MAY BE USED ON:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary
course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages
paid to those employees.
***The loan forgiveness cannot exceed the principal.
SBA Debt Relief
As stated previously the SBA Debt relief is NOT a loan program. Instead it is a relief option provided by the SBA to small businesses who already have a new or existing loan(s). The basic premise of this program is that the SBA will automatically pay the principal, interest and fees of current 7(a), 504, and microloans for a period of six months. The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.
ADDITIONAL RELIEF for current SBA Serviced Disaster (Home and Business) Loans: If your disaster loan was in “regular servicing” status on March 1, 2020, the SBA is providing automatic deferments through December 31, 2020.
If you have questions about your current loan and whether or not your loan is automatically deferred, please contact your Loan Servicing Office directly using the following information:
- Birmingham Disaster Loan Servicing Center:
- El Paso Disaster Loan Servicing Center:
SBA Express Bridge Loans
As originally announced, the EBL Pilot Program authorizes SBA Express Lenders to provide expedited SBA-guaranteed bridge loan financing on an emergency basis in amounts up to $25,000 for disaster-related purposes to small businesses located in communities affected by Presidentially-declared disasters while those small businesses apply for and await long-term financing (including through SBA’s direct Disaster Loan Program, if eligible).
The terms of this loan include:
- Up to $25,000
- Must have a current banking relationship with your SBA Express Lender on or before the disaster occurs
- Fast turnaround
- Will be repaid in full or in part by proceeds from the EIDL loan
EBL loans can only be made up to six months after the date of an applicable Presidential Disaster Declaration. For the COVID-19 Emergency Declaration, EBL loans can be approved through March 13, 2021. The EBL Pilot Program became available for use on October 16, 2017 and will expire on March 13, 2021.
If you have any additional questions about this loan you can refer to this link for a detailed explanation.