EIDL or PPP – Which is right for you?
Edited based on information received during a 4/7/2020 webinar with Joe Amato, SBA’s Nevada District Office Director. Notes from that are here.
In an effort to get as close to the horse’s mouth, so to speak, we are sharing the information Gina received on a conference call with the SBA’s Nevada District Office Director, Joe Amato yesterday, April 1.
We are going to do our best to clarify based on the questions that Mr. Amato answered during the call about the two SBA programs – the EIDL (Economic Injury Disaster Loan) and the PPP (Paycheck Protection Act).
THE RESTRICTION FORCING YOU TO CHOOSE EITHER THE EIDL OR THE PPP HAS BEEN LIFTED AND NOW WE CAN APPLY FOR BOTH!
See below and stay safe!
EIDL – Economic Injury Disaster Loan
This is a LOAN, not a grant that you apply for directly through the SBA (link is above). It is intended to help businesses continue to pay their expenses during this time, whether they’ve been ordered to close or not. The funds you get through an EIDL loan can be used for any business expenses – utilities, insurance, etc.
It has a 30-year amortization. If you’ve applied, you’ll notice the SBA does not ask you how much money you need. It has an algorithm which is based on your gross revenue, COGS, and number of employees.
If you are approved, payments are deferred for 12 months.
The original application took between 4 and 10 hours to complete; this week the SBA released a new streamlined version of the application which takes 10-15 minutes. If you apply now, you’ll also have an opportunity to request an advance of $10,000 against the principal you’re eventually approved for. This is STILL PART OF THE LOAN. If you are approved, the Treasury is supposed to send the money to your account within 72 hours of application. Amato said he started to see checks go out on Monday.
Keep in mind 2 MILLION applications were received in just two days – Monday and Tuesday of this week.
As of this week, nonprofit 501(c)3 organizations are eligible, but 501(c)6 organizations that engage in lobbying activities are not.
NOTE: You go through your bank to apply for this program, NOT directly through the SBA. So, if you are planning to apply, get on the horn with your banker and let them know you want to apply AND find out what information the bank will require. Because the bank is taking a risk on you without a guarantee that the full amount will be forgiven, each bank will have its own requirements. In fact, I’ve seen requirements from three different Nevada banks and they’re all different.
The application period is supposed to open tomorrow (April 3) but it’s unclear what the application will look like or what information is required. I’ve seen requirements from three different Nevada based banks and they are all different. Because the bank is taking a risk on you that may not be forgiven, expect to pull together some financials and reports from your payroll provider.
The most recent version of the application I can find is here.
PPP may NOT be for you if: you’ve laid everyone off and have no revenue, you’ve been shut down, you don’t have anything for employees to do.
PPP may be for you if you are employing all your people right now or have an opportunity to bring back your employees.
This program was part of the CARES Act, signed into law by President Trump last Friday. The funds you receive through the PPP are potentially a forgivable grant. I say “potentially” because the funds have to be used to keep people employed or to put employees back to work.
You’ll supply your banker with your average monthly payroll expenses, to include health benefits, retirement benefits, etc, plus the number of employees you have right now and how many you had this time last year.
You may qualify for 2.5 times your average monthly payroll. No guarantee or collateral is required.
Keep in mind that you have to maintain your employment levels for 8 weeks prior to the closing of the loan, when the bank can petition the SBA for full reimbursement of the money, at which time your loan is forgiven and is NOT A TAXABLE EVENT.
If, instead, you reduce your number of employees during that time, the original loan amount tied to the remaining employees will be forgiven. The rest will be a loan at .5% interest with 6 month payment deferral, and repayment must be made within 2 years.
Similarly, you can use up to 25% of the money you get for non-payroll related expenses (rent, utilities, etc.) and even that 25% may qualify for forgiveness.
Here again, 501(c)3s are eligible but not 501(c)6s.