SBA EIDL Loan vs. SBA Paycheck Protection Program

The Small Business Administration has two loan programs that you can apply to your small business, but which one should you choose? The SBA EIDL Loan Program or the SBA Paycheck Protection Program? Let’s find out. This article will discuss both programs and help you decide which one is right for your small business.

What is the Targeted EIDL Advance?

The SBA’s Targeted Economic Development Loan (EIDL) Program advances funds to U.S. small businesses that have been unable to obtain financing in conventional lending markets through a partnership with participating lenders, including many of America’s community banks. In 2014, lenders approved about $1 billion in loans through the EIDL program.

What is SBA’s Paycheck Protection Program?

Starting a business can be difficult, and many entrepreneurs turn to small business loans to kick-start their company. The U.S. Small Business Administration (SBA) offers small businesses with capital by guaranteeing loans from private lenders.

The Primary Differences Between The EIDL and PPP

The purpose of PPP is to help employers pay their employees’ wages when they don’t have any revenue coming in. The targeted EIDL advance, on the other hand, provides funding to help you grow your business, not pay your employees. In other words, it doesn’t serve as a funding source for your business or even payroll, but rather a reimbursement of lost wages. This makes it more of an adjunct benefit than a standalone program. However, it has some limitations on who can take advantage of it.

The EIDL maximum loan amount is $150k, while the PPP maximum loan amount is $10 million. The PPP loan also doesn’t require a credit check, but you will have to pass one if you qualify for an EIDL advance grant through your local SBA district office. Small business owners shouldn’t see this as an impediment—especially if they are likely to qualify for an SBA 7(A) program anyway. However, you should note that agencies can use it against you if you are applying for other financing opportunities with your bank down the road.

How to Take Advantage of Both?

Sign up for both the PPP and EIDL at the same time. That way, your business will be eligible to take advantage of whatever loans become available first. Then, if neither program provides a loan that suits your needs, you can still take out a loan from a traditional lender later on.

But there’s a catch to receiving both. According to Lantern by SoFi, “If you take out an EIDL loan to buy equipment, you can’t use any funds from your PPP advance to pay off that same purchase.” In other words, you can’t take out an EIDL loan to fund your payroll. You also must declare the advance amount if you sign up for the PPP loan amount. The SBA will subtract that amount from the PPP before you receive it.

If you need more time to pay your business’s payroll taxes in full, you may want to opt for an SBA paycheck protection program. It won’t cost you anything upfront, making it a viable option for many small businesses. But if you think your business will be able to repay its payroll tax debt within 45 days of obtaining financing, consider taking out an SBA Economic Injury Disaster Loan (EIDL).

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