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What Makes PPP Loans Different from EIDL

The financial aid promised by the CARES Act to qualified small businesses, may come under the guidelines of either the PPP or EIDL Program.

PPP stands for Payroll Protection Program while EIDL means Economic Injury Disaster Loans.

Main Differences between PPP and EIDL

PPP loans are 100 percent forgivable but will qualify only business entities that will not lay off employees or reduce their salaries. In contrast, EIDLs are loans that small to medium scale business owners can use to pay for a broader range of business expenses. Borrowers under this program must use at least 75% of the amount loaned to pay the salaries and wages of employees.

Applicants for EIDLs do not need to meet the 75% payroll requirement but will be required to comply with restrictions when juggling the funds in order to sustain their business. However, unlike PPPs, only a fixed amount of USD 10,000 can be forgiven. That is regardless of how the nature of the expense on which the $10K emergency fund was applied. .

Businesses looking to apply for a PPP stimulus fund but forced to cease operation as a nonessential business, must commit to rehire their employees by June 30, 2020. Apparently this is the target date whence nonessential businesses are expected to resume operations. Applicants for an EIDL may rehire employees at their own discretion and based on their own decision.

After eight weeks (2 months), a PPP borrower must show proof that 75% of the amount loaned were disbursed for payroll purposes. That way their PPP loan can be converted into a grant by the Small Business Administration. The conversion will free them from any obligation to pay the entire amount borrowed.

Otherwise, only the portion used for payroll purposes8 will be converted into a federal grant. The rest will continue to be treated as a loan, subject to payment of interest charges starting at one percent, and payable up to a maximum period of two years.

EIDL borrowers need not justify how the $10,000 forgivable emergency fund was disbursed. EIDL loans on the other hand, are subject to 3.75 percent interest rate and the full amount payable up to a maximum of 30 years.

Nonprofit organizations may also avail of EIDLs to which only 2.75 percent interest rate will be imposed. Loans granted to nonprofit entities are likewise payable up to a maximum of 30 years but with potential to qualify for a six-month extension period.