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CARES Act Paycheck Protection Program (PPP) Loans vs. SBA EIDL Programs Loans

What is the Difference Between CARE Act PPP Loans and the SBA EIDL Program

We have received countless calls and emails from business owners confused about the SBA relief funding options available.  One of the most common questions we have been asked is, “What is the difference between SBA EIDL and CARES Act Program, and which is better?”  Business owners want to know what loan terms are available and if they can apply for both types of relief funding.

We have prepared a summary of differences between the two relief programs, to the best of our ability, based on the information that is publicly available.

If you have applied for CARES Act PPP financing with us, we are working diligently to complete your file for assignment, and final underwriting.

Who is eligible for SBA Disaster Relief Funding?

You are eligible if you own a small business, are self-employed, and not presently in bankruptcy, and have not previously defaulted on government debt (i.e. SBA loan, student loan, FHA mortgage, etc).

Are there fees charged for Disaster Loans?

No.  There are ZERO fees charged by Zip Capital Group, the SBA, or participating lenders for SBA disaster relief loans. Nobody is allowed to charge you a fee for a Paycheck Protection Program (PPP) loan. 

Do not pay anyone an out-of-pocket fee who is helping you obtain a disaster relief loan.  There are thousands of direct lenders and experienced SBA loan providers like Zip Capital Group, that are offering Paycheck Protection Program (PPP) loans, and the SBA is offering Economic Disaster Loans directly.  The applications are straightforward and easy to understand, and if you need help, call your SBA district office, or ask your loan provider, accountant, or financial planner.

Helpful Information and Articles:

Paycheck Protection Program (PPP) Information Sheet

What the COVID-19 Stimulus Package Means for Small Businesses

The Small Business Owner’s Guide to the CARES Act

Paycheck Protection Program (PPP) FAQs for Small Businesses

Get a $10,000 Emergency Advance

You can get up to a $10,000 grant from the SBA for your small business while you wait for your larger CARES Act Paycheck Protection Program (PPP) Loan or SBA Economic Injury Disaster Loan (EIDL) Follow the below steps:

  1. Go to https://covid19relief.sba.gov/#/
  2. Fill out the application
  3. On the page titled “Additional Information”, make sure to click on “I would like to be considered for an advance of up to $10,000”
  4. Complete application

This grant provides an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). If you already filled out an application, you are still eligible for this grant, however, it has not been made clear if you need to go back and request the grant or fill out a new application.

The advance does not need to be repaid under any circumstance, and may be used for business purposes, including: to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments. (See p. 28, Section 1110(e)(5) of H.R. 748 (CARES Act))

Economic Injury Disaster Loan (EIDL)

    • Must apply directly through the SBA (funds delivered by the SBA only, not us)
    • Loan amounts up to $2,000,000
    • 3.75% interest rate for for-profit businesses
    • 2.75% interest rate for non-profit businesses
    • Loan terms will not exceed 30 years
  • Only available in states with SBA approved declarations of disaster (check the most current State availability list here)
  • Through our sources we’ve heard there are currently over 25,000 applications submitted so far, with at least a 3-week approval lag time. It can be assumed that approval times will only increase as more applicants apply

CARES Act Paycheck Protection (PPP) Loans

**SBA lenders and loan providers will begin to process applications for Small Business Owners and Sole Proprietors on 4/3/20, and for Independent Contractors on 4/10/20**

  • You can apply through Zip Capital Group, and learn more here
  • You are eligible if you own a small business, are self-employed, are not presently in bankruptcy, and have not previously defaulted on government debt (i.e. SBA loan, student loan, FHA mortgage, etc.)
  • Loan amounts up to $10,000,000 (The maximum loan amount is the lesser of $10,000,000 or the product obtained by multiplying average total monthly payments for payroll costs during the 1-year period before the loan is made by 2.5. So if the loan was made on April 1, 2020, and average monthly payroll costs for the period April 1, 2019, to April 1, 2020, were $1,500,000, the maximum loan amount would be $3,750,000. Payroll amounts over $100,000 per person, will be excluded from the calculation).
  • No minimum credit score guidelines
  • Interest rates will not exceed 0.5% for eligible for-profit and non-profit businesses
  • Loan forgiveness (small businesses that take out these loans can get some or all of their loans forgiven. Generally speaking, as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven. Any loan amounts not forgiven at the end of one year are carried forward as an ongoing loan with terms of a max of 2 years at 0.5% interest. The 100% loan guarantee remains intact.)
  • Fully amortizing loan terms of 2 years
  • Loan proceeds to include payroll support (including paid sick or medical leave), employee salaries, mortgage payments, insurance premiums and any other debt obligations incurred before 2/15/2020
  • SBA guarantee fees and lender fees will be waived
  • No prepay penalty and no personal guarantees
  • The “credit elsewhere” test and collateral requirements would be waived during the covered period (this means that if you can get a loan “credit” through a non-disaster relief program, you can still get a loan under the CARES Act)

Can you get an SBA Economic Injury Disaster Loan and a Paycheck Protection (PPP) loan?

Yes. If you received an EIDL loan related to COVID-19 between January 31, 2020 and the date at which the PPP becomes available, you would be able to refinance the EIDL into the PPP for loan forgiveness purposes. However, you may not take out an EIDL and a PPP for the same purposes. Remaining portions of the EIDL, for purposes other than those laid out in loan forgiveness terms for a PPP loan, would remain a loan. If you took advantage of an emergency EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven under PPP.

What are the Borrower Requirements?

There are very few borrower requirements outlined in the bill to obtain a loan under the new program. Those requirements include a good-faith certification that:

  • The loan is needed to continue operations during the COVID-19 emergency;
  • Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments;
  • The applicant does not have any other application pending under this program for the same purpose; and
  • From February 15, 2020 until December 31, 2020, the applicant has not received duplicative amounts under this program.

Which is better?

Although you must decide which relief program is best for you, we believe that the CARES Act PPP Loan is the better option for the following reasons:

  • The maximum PPP loan rate is only 0.5% vs. 3.75% for EIDL
  • The first payment on a PPP loan is deferred for 6 months
  • You can refinance an existing SBA EIDL financing under the PPP as long as the proceeds are used for different purposes, so why not get both?
  • CARES Act PPP Loans are available up to $10,000,000 vs. only $2,000,000 for the EIDL program.
  • With the expertise and experience of seasoned SBA lenders and loan providers involved and helping to shape policy, we anticipate that the CARES Act SBA 7(a) Relief Loan program will be more streamlined than the EIDL program, and funding will be available faster.