Moxie Group Compares SBA EIDL Program vs. CARES Act SBA 7(a) Relief Loan
We have received thousands of emails and calls from business owners confused about the SBA relief funding options available. One of the most prevalent questions we have been ask is, “What is the difference between the SBA EIDL and CARES Act program, and which is better?” Business owners also want to know what loan terms are available and if they can apply for both types of relief funding. Outlined below, and to the the best of our ability based on the information available, are the differences between the two programs and the broad strokes of what each entails.
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
* If you receive an EIDL, you will not be eligible for the CARES Act SBA 7(a) Relief Loan
EIDL - Forgiveness, Terms & Notes Loan Forgiveness:
● None Terms
● Terms up to 30 years
● 3.75% interest (small businesses); 2.75% (most private nonprofits)
● $25,000 initial disbursement, with other disbursements scheduled with a loan officer
Paycheck Protection Program (PPP)
The Paycheck Protection Program is designed to provide borrowers with payroll relief in exchange for retaining their workforce. Qualifications:
● 500 employees OR
● SBA employee size standard. See SBA size standards chart at _1201
Note: The size of the applicant combined with its affiliates must not exceed the size standards designated above. The affiliation language in the SBA size standard guidelines may limit the ability for some of our companies to participate. Additional information on affiliation can be found here:
PPP - Loan Amounts & Qualifying Costs
Maximum Loan Amount:
● 2.5x the average total monthly payments for payroll costs incurred during the one-year period before the date in which the loan is made. This period will likely be April 1, 2019 through March 30, 2020.
Note 1: For seasonal business the calculation can be 2.5x average monthly payroll costs incurred for the period between Feb 15, 2019 to June 20, 2019 OR March 1, 2019 to June 20, 2019 can be used – the SBA will determine if the businesses can be considered seasonal.
Payroll costs include:
● 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
● Healthcare benefits, including insurance premiums
● Any retirement benefit
● State or local tax assessed on the comp. of employees
● Sum of payments of any compensation to independent contractors or sole proprietorship's that is a wage, commission income, net earnings from self employment, or similar compensation.
PPP - Loan Amounts & Qualifying Costs Cont.
EXCLUDED costs include:
● Compensation of an individual employee (and independent contractors/sole proprietorship's referenced on the previous slide) in excess of an annual salary of $100k
● Taxes imposed or withheld under chapter 21, 22 or 24 of the IRS
● Any compensation of an employee whose principal residence is outside of the U.S.
● Qualified sick leave or family leave for which a credit is allowed under section 7001 or 7003 of the Families First Coronavirus Response Act
How Much of The PPP Loan Can/Will Be Forgiven?
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.
Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
- You will also owe money if you do not maintain your staff and payroll.
- Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
How Can You Request Loan Forgiveness?
Get can submit a request through the lender who ends up servicing your PPP loan. You will be required to submit specific documentation to verify use of funds.
What is the PPP Interest Rate and Loan Due Date?
Fix rate of 1.00%.
All payments are deferred for 6 months; however, interest will continue to accrue over this period.
Loan is due in 2 years, but can be paid early with no prepayment penalties or fees.
Do You Need To Pledge Collateral or Personally Guarantee the Loan?
Good news! No collateral is required and there is also no personal guarantee requirements.
The SBA has NOT issued guidance yet on what documentation is required for this program, so the below items are our best estimate of what is needed. Additional documentation may be required to complete the processing of your loan application.
LABEL ALL DOCUMENTS CORRECTLY BEFORE UPLOADING (i.e. label John Smith's drivers license as "John Smith's Drivers License", etc.)
Articles of Incorporation / Organization
By Laws / Operating Agreement
Color Copy of All Owners Driver’s Licenses
For Payroll Expense Verification
IRS Form 940 and 941 (contact your payroll processor or accountant for these forms)
Payroll Summary Report or Employee Pay Stubs (including payroll benefits, i.e. vacation, healthcare, retirement, etc.) as of 02/15/2020 with corresponding bank statement (contact your payroll processor or accountant for these forms)
1099s (if Independent Contractor)
Other Verification Documents
Trailing 12-Month Business Profit and Loss Statement (as of the date of this application)
Most Recent Business Mortgage Statement and/or Rent Statement / Lease
Most Recent Business Utility Bills (i.e. electric, gas, telephone, internet, water)
Please send all Documentation to this Email (firstname.lastname@example.org)