PPP vs. EIDL vs. 7(a) Loan: Which Is Best for Your Small Business?

It’s no secret that small businesses across the U.S. are struggling. Thankfully, help is here from the federal government, specifically the Small Business Administration (SBA). The SBA does not make loans. However, the guarantee a portion of the loans so they are more attractive to banks.

Apply for the latest round of PPP funding

Many banks are working with an online company who help process the loans for banks and move the application along. For example, SmartBiz Loans has help thousands of entrepreneurs with their Paycheck Protection Program (PPP) application. We work with multiple banks to match you with the organization most likely to fund. We understand time is limited for business owners and we strive to provide a swift, streamlined process to get business owners the funds they need to rebuild, stabilize, or grow their business. Start an application or learn more on the SmartBiz website.

However, the PPP loan isn’t the only option during this economic downturn. Economic Injury Disaster Loan (EIDL) funds are available along with traditional 7(a) loans, known as the “gold standard” in small business funding.

Learn more about these options so you can decide what is best for you and your small business.

Key takeaways include:

  • Legislation put in place in late December 2020 provides funding for the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs.
  • The application for forgivable PPP loans ends on March 31, 2021.
  • PPP loans are provided by private lenders while EIDL loans are generated with funds provided by the government.
  • Additional SBA programs include Express Bridge Loans, 7(a) loans, loan deferrals, forgiveness and more.

Paycheck Protection Program (PPP) 2021

The Consolidated Appropriations Act, 2021, provides first-time forgivable PPP loans of up to $2 million for previous borrowers with 300 or fewer employees. There are special set asides for eligible live venue operators or promotors, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operations or talent representatives.

The list of forgivable expenses has been expanded and includes:

  • Insurance benefits
  • Employee salaries and/or commissions
  • Payroll costs
  • Rent payments and/or mortgage payments
  • Utilities
  • Software or cloud computing costs for business operations NEW
  • Costs related to property damage and vandalism or looting due to public disturbances not covered by insurance or other compensation NEW
  • Costs of the supply of goods that are essential to business operations NEW
  • Covered worker protection expenditures that help adapt business activities to COVID safety requirements NEW

Who is it best for?

Businesses with less than 500 employees that are negatively impacted by the pandemic and are applying for their first PPP loan. Previous PPP loan recipients with business less than 300 employees can also qualify if they have more than a 25% drop in revenue quarter over quarter from the previous year. If you are applying for your second PPP loan, you will need to have used the full amount of funds from your first PPP loan before your second is disbursed.

How much can I borrow?

Eligible businesses can apply for as little as $2,500 or as much as $2 million. Our streamlined application will even help you calculate the allowable loan amount for your business based on your payroll information.

What are the loan terms?

PPP loans are 100% federally guaranteed and have a low interest rate of 1.00% and a term of 2 years. There is no collateral required and no repayment necessary for the first 10 months.

What documents do I need to provide?

To apply for a PPP loan, you’ll need to submit your business and personal tax returns, business bank statements, and payroll history report. If you use a payroll reporting service like ADP or Gusto, you can download their PPP reports. Also, you can easily and securely link your payroll provider account directly to your PPP Loan application.

What about loan forgiveness?

Loans are fully or partially forgiven based on appropriate use of funds. NOTE: You must apply for forgiveness through the bank that funded your loan after the funds from your PPP loan are used up. Forgiveness is not automatic.

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Economic Injury Disaster Loan (EIDL) Advance

Small business owners in all 50 states, Washington D.C., and U.S. territories were able to apply for an Economic Injury Disaster Loan (EIDL) Advance of up to $10,000 as part of the application process for an EIDL loan. The loan advance did not have to be repaid and you didn't actually have to be approved for an EIDL loan to receive the advance, however the amount of the loan advance was deducted from total loan eligibility.

If you previously received a partial EIDL Advance ($1,000 to $9,000) the SBA will reach out to you first by official (@sba.gov) email to determine your eligibility and provide instructions.

Qualifications

You may be qualified if you:

  • Are located in a low-income community, as defined in section 45D(e) of the Internal Revenue Code; and
  • Can demonstrate you suffered a more than 30% reduction in revenue during an 8-week period beginning on March 2, 2020, or later. You will be asked to provide proof of the more than 30% revenue reduction.
  • Previous PPP loan recipients with business less than 300 employees can also qualify if they have more than a 25% drop in revenue quarter over quarter from the previous year.

If you previously applied for an EIDL Advance but did not receive one due to a lack of funds, you are next in line to be contacted by the SBA.

To qualify in this group you must meet the qualifications above plus:

  • Have no more than 300 employees.

If your business is otherwise eligible for the EIDL program—including if you are a sole proprietor, independent contractor, or private, nonprofit organizations—and you meet the qualifications above, you are eligible for consideration for the targeted advance. Agricultural enterprises are not eligible.

You may be asked to provide an IRS Form 4506-T giving the SBA permission to request your tax return information.

SBA Express Bridge Loan (EBL)

If you already have a business relationship with an SBA Express Lender a new Express Bridge Loan Pilot Program offers quick turnaround on up to $25,000 to help bridge the gap until your SBA Economic Injury Disaster Loan (EIDL) is approved. Bridge funds can be paid in full or in part with proceeds from your EIDL once it is approved.

Where to apply for an SBA Express Bridge Loan

Consult the Express Bridge Loan Pilot Program Guide or contact your local SBA district office for details.

Microloan Program

This program provides small, short-term loans up to $50,000 to small businesses and certain types of not-for-profit childcare centers. Loans can be used to buy new equipment, supplies, or furniture, or to provide working capital. Loans are provided by microlenders, with each having its own lending and credit requirements.

CDC/504 Program

This loan program provides financing for businesses to purchase real estate, major fixed assets, and equipment, or make improvements like landscaping. This program can also provide funding for renovation.

Conclusion

Take some time to review the loan programs available to you. The SmartBiz Loans Small Business Blog features a host of posts to help you navigate the new normal. Learn about lending, credit, marketing, sales, employee management, and more.

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