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EIDL vs. PPP Loans vs. Grants: Which One Is Right for Your Small Business?

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Federal loan and grant programs remain open to small businesses still feeling the impact of COVID-19. The COVID-19 Economic Injury Disaster Loan (EIDL) and the Shuttered Venue Operators Grant (SVOG) are available through the U.S. Small Business Administration (SBA).

Though both the Paycheck Protection Program (PPP) and Restaurant Revitalization Fund are now closed, the remaining SBA programs have features similar to those that made PPP loans desirable — low-interest rates and portions that may not need to be repaid. It’s important to consider your business’s financial needs, staffing and long-term outlook when deciding between SBA loans and grants.

EIDL vs. PPP loans vs. grants: How they stack up

The Paycheck Protection Program and COVID-19 Economic Injury Disaster Loan were the first two federal loan programs for small business owners affected by the coronavirus pandemic. They have since been joined by two new grants, the Shuttered Venue Operators Grant (SVOG) and the Restaurant Revitalization Fund (RRF). All four programs are overseen by the U.S. Small Business Administration (SBA), but there are big differences between them.

Comparing COVID-19 relief programs
COVID-19 EIDL SVOG RRF PPP
Maximum Amount $500,000 $10 million $10 million ($5 million per restaurant location) $10 million ($2 million for second-time borrowers)
Eligible recipients Small business owners, nonprofits Venue operators, museums Restaurants, food operations Small business owners, nonprofits
Repayment necessary? Yes, but a cash advance does not need to be repaid No, but you must qualify No, but you must qualify No, if at least 60% of funds are used for payroll
Combine programs? May apply for 1 EIDL and the Targeted EIDL Advance, if you qualify May apply for up to 2 SVOGs + EIDL; may not apply for PPP after receiving SVOG May apply for RRF + EIDL; may not apply for PPP after receiving RRF May apply for 2 PPP loans + EIDL, as long as they’re used for different purposes
Status Open Open Closed July 2 Closed May 31

Which one is right for my small business?

Let’s take a quick look at each program — we’ve included closed programs to compare how the current options stack up against the popular but now-closed PPP and RRF.

EIDLs

Best for: Small businesses unable to pay a variety of daily expenses. Businesses in low-income communities may be best suited for the Targeted EIDL Advance.

Loan overview

Early in the pandemic, the SBA expanded its existing Economic Injury Disaster Loan program to create a new COVID-19 EIDL. COVID-19 EIDLs are available up to $500,000, plus a $10,000 Targeted EIDL Advance ($15,000 for the smallest and especially hard-hit businesses) that doesn’t need to be repaid. After discontinuing the initial EIDL Advance in July 2020, Congress replaced it with the Targeted EIDL Advance in December 2020. Businesses must meet stricter eligibility requirements to receive the advance.

EIDLs: At a glance
Maximum interest rate: 3.75% for businesses; 2.75% for nonprofits Maximum terms: 30 years Collateral: Required for loans of more than $25,000 Apply: Directly to the SBA; eligible advance recipients will receive an email invite Uses: 24 months of working capital

Unlike the PPP, which is funneled through banks, EIDLs are funded directly through the SBA. Companies must show a greater need for the EIDL Targeted Advance — an economic loss of 30% or more — than the EIDL. EIDL funds are not eligible for loan forgiveness, but repayment terms could be as long as 30 years, depending on the individual borrower’s ability to repay debt. Payments for EIDLs approved in 2021 are deferred for 18 months, with those approved in 2020 deferred for 24 months.

SBA grants for venue, restaurant operators

Restaurants, theaters, museums, live performing arts organizations and others have been particularly hard hit by the pandemic. If your business falls into one of these categories, check out the eligibility criteria below and apply. This is money that does not need to be repaid, though you will need to track your expenses.

Shuttered Venue Operators Grant (SVOG)

Best for: Operators of theaters, museums, live performing arts organizations, independent movie theaters and other venues.

Grant overview

The program was first created in December 2020 but received a boost in funding from the American Rescue Plan Act passed in March 2021. Money may be used for payroll, rent or mortgage payments, utilities, administrative costs and other business expenses.

SVOG: At a glance
No repayment necessary Maximum amount: $10 million Eligibility: See eligible entities here Apply: Through the SBA website

Grant amounts are based on an entity’s gross earned revenue:

  • Entities in operation on Jan. 1, 2019: 45% of 2019 gross earned revenue OR $10 million, whichever is less
  • Entities that began operations after Jan. 1, 2019: Average monthly gross revenue in 2019 x 6 OR $10 million, whichever is less.
Restaurant Revitalization Fund (RRF)

Best for: Restaurant owners and groups.

Grant overview

The newest kid on the block, the $28.6 billion RRF was created in the American Rescue Plan Act. Money may be used for payroll, rent or mortgage expenses, utilities, maintenance, supplies, food, operational expenses, supplier costs and more.

Applications to the RRF are now closed.

RRF: At a glance
No repayment necessary Maximum amount: $10 million Eligibility: See eligible entities here Applications are no longer accepted.

Restaurants could receive a grant equal to the difference between their 2020 and 2019 gross receipts. The amount of money applicants were eligible for was determined by several factors:

  • When the restaurant began operations
    • On or before Jan. 1, 2019
    • Through 2019
    • On or between Jan. 1, 2020 and March 10, 2021
    • Not operational as of March 11, 2021, but have have incurred expenses that are eligible
  • Whether they operate multiple restaurants

PPP loans

Best for: Small business owners who need help now with payroll expenses.

Loan overview

The Paycheck Protection Program was created through the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, in March 2020 and revived in December 2020. Congress injected more money into the program in March 2021 through the American Rescue Plan Act, and later extended the deadline to May 31, 2021 to apply. The SBA had until June 30, 2021 to process those applications.

Applications to the PPP are now closed.

PPP loans: At a glance
Maximum interest rate: 1% fixed interest Maximum terms: 5 years Collateral: Not required Applications no longer accepted Uses: See below

As we mentioned earlier, loans were available up to $10 million for first-time borrowers and $2 million for second-time borrowers. Businesses eligible for a first-draw loan included sole proprietors, independent contractors, self-employed business owners and any business or nonprofit organization that met the SBA’s size standards. Second-draw loans were for eligible businesses with more than 300 employees that could demonstrate a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

Maximum loan amount calculation: In general, your maximum loan amount would depend on your average monthly payroll costs for 2019 or 2020. You would multiply that number by 2.5 to determine the highest amount you could borrow. First-time borrowers can find more information here; second-time borrowers can go here.

New for sole proprietors, independent contractors and self-employed business owners is the ability to use your gross income instead of your net income for calculating your maximum loan amount.

Loan forgiveness

PPP loans may be forgiven if funds are spent on specific expenses during an eight or 24-week period including:

  • Payroll costs
  • Mortgage interest or rent payments
  • Utilities
  • Operational expenses as a result of the pandemic (software, cloud computing, human resources and accounting)
  • Property damage as a result of civil unrest in 2020 (expenses not covered by insurance)
  • Supplier costs as a result of the pandemic
  • Worker protection expenditures (personal protective equipment)

Borrowers could use loan funds for other expenses, but any money spent on anything outside SBA-approved expenses would not be forgiven. In addition, approved payroll expenses do not include employee compensation exceeding $100,000.

Any reduction in employees during the eight- or 24-week period may result in a proportionate reduction in your forgiveness amount. If you laid off employees before receiving your loan, re-hiring those workers could make you eligible for full loan forgiveness, with the time you have to rehire them will depend on when you received the loan. You might also be eligible for full forgiveness if you are unable to find qualified employees to fill those roles or cannot resume normal business operations.

Any amount that is not forgiven would have a five-year repayment term with 1% interest.

EIDL vs. PPP loans vs. grants: What to consider

While the PPP has ended, determining whether an EIDL would be the best solution for businesses that don’t qualify for the new SVOG varies from business to business.

Rather than applying for financing in a fit of panic, take time to analyze your true cash needs and if you have access to any other forms of credit, said Katie Vlietstra, vice president for government relations and public affairs for the National Association for the Self Employed. Vlietstra recommended working with a trusted advisor, such as an attorney or an accountant, to determine your business’s financial standing and navigate the loan application process. Plus, keep in mind that the SBA may continue to release new information regarding federal funding.

“The reality of the situation is this is not a short-term crisis,” Vlietstra said. “It would behoove any business owner right now to assess what their needs will be in the long term.”

Application process

The $10,000 EIDL advance could be a more attractive option than PPP loans, especially to self-employed business owners or those who operate smaller businesses, according to Vlietstra. In addition, the simplicity of the disaster loan application process — which you can complete online directly through the SBA — may seem more feasible than meeting banks’ changing requirements for PPP loans.

Loan repayment or forgiveness

On the other hand, EIDLs would need to be repaid, with interest, while PPP loans could be eligible for full loan forgiveness, including any interest accrued.

As discussed earlier, PPP loans may be fully forgiven if funds are spent on SBA-approved expenses and all staff members remain employed. The SBA is also offering 10 months of deferred loan payments on PPP loans. EIDL payments may be deferred for 18 months (24 months for loans made in 2020).

If you can’t decide, apply for multiple forms of aid

If you received a PPP loan, you can still submit an application for the EIDL — you just can’t use the disaster loan to help with the same expenses as the PPP loan, such as payroll. You may receive the $10,000 advance in the meantime, which you wouldn’t need to repay regardless of whether you’re approved for a disaster loan. Eligible restaurant or venue operators could then apply for a grant as well — there may be restrictions on using multiple programs for the same expenses, however, and you’ll need to keep records of your expenses.

 

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