What are EIDL and PPP Loans? How do they work?

The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) are the loan programs funded by CARES ACT. It consists of stimulus funds as grants and loans for small businesses in the US. These loans have a lot of things in common but also have some major changes. The EIDL offers up to $2 million (as per your eligibility) for businesses to cover operational expenses of around 6 months. At the end, you can pay the amount of money back. In addition, it also has cash advances from $1000 to $10,000, which you may or may not repay, even though you are rejected for it. 

On the other side, Paycheck Protection Program (PPP) loans can also be useful to deal with operational expenses. But they are basically aimed to cover payroll for 8 weeks. You have to spend a minimum of 60% of the loan amount on payroll. You can also use a part of the loan to cover rent, mortgage, or utility bills. PPP loans can be around $10 million (as per your payroll dues) and it will be relieved if you comply with all the rules. 

If you meet the requirements for both loans and use proceeds on various things, you are eligible to apply for and get both loans. For example, one can use EIDL for operational expenses and PPP for payroll. 

How EIDL Works?

The EIDL Loan is offered for employee benefits, payroll expenses, fixed debts (rents, mortgages, accounts payable, or leases) and other expenses. If you get a grant which is forgivable, you should spend the same on the same expenses in 8 weeks of getting the grant, i.e. at a time when it might take before the main loan comes across. EIDL Loans are also known as Working Capital Disaster Loans and they are issued from the US Treasury. You can simply go to SBA’s official website to apply for the loan. 

How PPP Loans Work?

PPP loans are available to cover payroll expenses as well as rent, utility bills, and a lot of mortgage interests for the period of over 24 weeks after processing the loan. It can also be available for employee benefits (which fall under payroll costs) and paid sick leave. If you maintain the payroll, the loan is forgivable. The main condition is that at least 60% of loan amount should be spent on payroll expenses. It is the main difference between EIDL and PPP loans. 

The US Treasury doesn’t issue PPP loans directly like in case of EIDL loans. The funds are rather issued through the bank or any financial institution approved by SBA. So, you need to apply for PPP Loans through the lender instead of SBA.