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Q&A: Comparison of EIDL and PPP Loans Being Offered by Small Business Administration (SBA)

Q: What is the purpose of offering 2 separate loan programs by the SBA
A: The Economic Disaster Loan Assistance (EIDL) is intended to help small businesses meet financial obligations and operating expenses that could have been met had the COVID-19 outbreak not occurred. Paycheck Protection Plan (PPP) on the other hand is intended to help keep people on the payroll at their company during the crisis and 75% of all proceeds must go to wages and related benefits.

Q: Who is making the loans?
A: EIDL loans are administered directly by the SBA and PPP loans will be administered by qualifying banks and backed by the full credit of the SBA.

Q: What kind of company is eligible for these loans
A: In general, these loans are available to companies that have 500 or fewer employees.

Q: How much is the maximum loan under each program?
A: EIDL loans are capped at $2 million. PPP loans are basically 2.5 times the trailing 12-month average of wages, benefits, utility and lease payments established prior to 2/15/20 with a maximum amount of $10 million. Some exclusions apply – please contact the Optimal SBA Task Force for specifics.

Q: Can you include shareholder distributions to employees as part of total compensation in calculating the loan amount under PPP?
A: Many aspects of this new law are still being worked out, but the answer is probably not. PPP is intended to keep people on the payroll and is looking at basic wages and associated benefits. Shareholder distributions occur regardless of employment status and would likely be excluded under PPP.

Q: Does either loan require collateral or guarantees?
A: Under EIDL the SBA will place a UCC lien against assets of the business and require personal guarantees on loans greater than $200,000 from owners of at least 20% of the business. A PPP loan will be backed by the full credit of the SBA and does not require collateral or personal guarantees.

Q: I have heard that there are loan forgiveness provisions in one of these, could you explain.
A: There is no loan forgiveness on EIDL, however, the PPP contains extremely generous terms in that the entire loan can be forgiven as long as at least 75% of all loan proceeds were used to pay wages and benefits. Again, some exclusions apply, and it is recommended that you consult with a professional like the Optimal SBA Task Force to ensure proper compliance.

Q: How long will it take to apply for and receive funding for each loan?
A: The SBA estimates that it will take 2-3 weeks to review EIDL loans and an additional 5 business days for funding. PPP loans will be administered by qualifying banks and the first day to submit an application is 4/3/20. The amount of time from application submission until potential funding in simply unknown at this time. However, funds will not be disbursed under PPP until at least 5/1/20.


DISCLAIMER – Due to the daily changing environment and guidelines being provided by the government, this information could be outdated. Please contact our office for the latest updates and guidelines. Optima Office is not responsible for any actions taken due to the information provided. The information provided here is for instructional purposes and does not represent legal advice being given by Optima Office.



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