COVID Financial Management
Comparison of EIDL and Paycheck Protection Programs
This article was originally published on March 31, 2020. It was updated to reflect new guidance from the SBA on April 2, and again on April 23 to clarify eligibility guidance.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act), in response to the economic effects of the COVID-19 virus. The CARES Act contains the following key components with respect to the SBA Economic Injury Disaster Loan program (EIDL):
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- expands eligibility to include private nonprofit organizations and small agricultural cooperatives;
- waives personal guarantees on loans under $200,000;
- waives the “unable to obtain credit elsewhere” provisions; and
- provides organizations with immediate funding of $10,000 upon application once eligibility has been verified.
In addition to the EIDL expansion, the CARES Act adds a new Paycheck Protection Program (PPP) to the SBA’s section 7(a) lending program. The PPP offers loans of up to $10 million for businesses to maintain payroll and related benefits, interest on mortgages and other debts, leases and utility payments. All of this adds up to tremendous opportunities for organizations to get the help they need. Here is how we can help:
Take action now
We recommend organizations get started immediately and take advantage of assistance programs while funds are available. Banks are still looking for guidance on how to process the programs. While the banks are getting organized, reach out to your banker and let them know you will be applying for a program. Get financial information pulled together, and meet with your CLA advisors to help you strategically look at your needs and choose the program(s) best suited for your situation.
Action steps you can take
- Contact your bank as soon as possible to get your organization registered. Confirm that your bank is an SBA-approved bank, as this is required in order to access funds. Many banks began accepting applications on April 3 for businesses, nonprofits, and sole proprietorships. Independent contracts and self-employed individuals open for application April 10.
- Reach out to your CLA advisor to help you evaluate your cash flow needs and the potential benefits of the new programs that are available.
- As part of the application process, discuss with your CLA advisor the need for certified payroll and personal financial statements for owners.
- Based on initial applications from banks, consider pulling the following information together:
- Documentation for the average monthly payroll and average monthly full-time equivalents, based on calendar year 2019. Although this differs from the period specified in the CARES Act, the SBA application refers to calendar year 2019. (There are payroll limitations that need to be considered.)
- The average payroll by category: salary, hourly, commissions, vacation, sick leave, group health care (both union and non-union) and retirement contributions (both union and non-union).
- The monthly rent (or mortgage interest) over the last 12 months.
- The amount spent on utilities over the last 12 months.
- The interest on mortgage and any other debt obligations that were incurred before 2/15/2020.
- The tax ID# and full legal name of each entity.
- Ownership information to assist in evaluation of the impact of affiliate entities. For any owners who have more than a 50% ownership interest, obtain a complete listing of other entities in which they also hold more than a 50% ownership interest.
- Documentation on any other COVID-19 relief programs you are applying for (e.g., payroll tax credits, etc.).
To help you begin to understand the major programs being offered, see below for a summary of key provisions of the EIDL program and PPP. This information is subject to change as more details are released. One important note is that the PPP and the EIDL program can be used together, as long as the loans are not used to fund the same costs.
|Economic Injury Disaster Loan (EIDL)||Paycheck Protection Program (PPP Section 7(a)|
|Administrator||SBA||SBA Approved Financial Institutions|
|Amount of Loan||Up to $2 million||
|Interest Rate||For- Profit 3.75% | Non-Profit 2.75%||1%|
|Term/ Maturity||Up to 30 years||2 years|
|Deferral||12 months (interest accrues during deferment)||6 months (interest accrues during deferment)|
|Prepayment||Prepayment is eligible||Prepayment is eligible|
Size eligibility can be satisfied with any of the following (only need one to apply):
Eligible entity types, subject to above size eligibility, include:
|Usage||Fixed Debts, payroll and related benefits**, accounts payable and other expenses that cannot be paid because of the disaster’s impact||Payroll and related benefits** Interest on mortgage payments or other debts, rents and utilities|
|Cannot be used for||Refinancing of debt, payment of other SBA loans or lenders, tax penalties, civil fines, repairs of property or other physical damage, pay dividends or distributions to owners or partners||Limited to uses noted above
(EIDL may be eligible to be refinanced into a PPP loan)
|Collateral||If available, collateral will be taken on loans greater than $25,000||No collateral from business or its owners|
|Loan forgiveness and grant eligibility||Emergency grant up to $10,000****
(EIDL may be eligible to be refinanced into a PPP loan)
|Guarantees||Waives requirement of personal guarantees on loans less than $200k||None|
|Can I Apply Now?||Application process and loans are available now||Application process and loans are available now|
*The SBA’s “alternative size standard” as of March 27, 2020 states an entity can be eligible if it meets these two conditions: (1) maximum tangible net worth of the business is not more than $15 million and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the day of the application is not more than $5 million.
**Excludes compensation in excess of $100k or qualified sick and family leave covered under sections 7001 and 7003 of the Families First Coronavirus Response Act. At this point, SBA’s Interim Final Rule does not define “compensation,” but many financial institutions are interpreting “compensation” to include employer cost of health insurance, retirement benefits, and state and local taxes.
***Forgiveness amount determined considering factors such as full-time equivalents and payroll rate reductions compared to a defined pre-COVID-19 impacted benchmark period. Forgiveness is non-taxable. For entities with prior workforce or compensation reductions, there are exemptions for entities that re-hire and eliminate compensation reductions. However from a practical standpoint, re-hiring and eliminating compensation reductions may need to be completed by April 26 in order to maximize forgiveness under the overall formula.
****Although certain entity types (e.g. nonprofits) can qualify for the EIDL, emergency grants of up to $10,000 only apply to eligible entities with 500 or fewer employees.
How we can help
We’re here to help you through this complex, rapidly changing environment. Whether you’re considering EIDL, PPP, grants or other financing, CLA is ready to help you navigate the process. We will work together with you to understand your unique situation, strategize on immediate business decisions, and help you to pull together the information necessary for you to submit your loan application.