EIDL & PPP Pandemic Loan Options

by Erin Armstrong | Apr 7, 2020 | Accounting & Logistics, Small Business | 0 comments

Over the past week, you’ve probably read at least a little about the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). However, if you’re like many, you might be a little confused–perhaps even feeling frustrated–about how to get government financial assistance for your business. I’d like to try to help you by sharing some helpful explanations & tips below.

If your business is taking a financial “hit” due to the pandemic, your business probably qualifies for government financial assistance.

The U.S. government recognizes that most businesses are experiencing a loss of revenue due to the pandemic. Whether you attribute your revenue loss to the fact you’re a “non-essential” business that can no longer operate, have clients that have halted their payments to you, have had clients drop, or simply are not generating new business as our society takes this collective pause, all are feasible losses of revenue.

>> What can I qualify for?

Generally, there are 2 helpful federally backed loans (that largely can be forgiven, thereby operating more like a grant). The first is the EIDL to help you cover expenses in your business. The EIDL is issued directly from the SBA. The second is the PPP to help you cover payroll costs & keep your employees employed. The PPP is being administered through hundreds of banks and lending institutions throughout the nation. Generally, you cannot receive both the EIDL & PPP loans–however, if you applied for (and received) the EIDL before 4/3/20 you may indeed receive both (essentially the PPP will subtract the EIDL amount from the PPP eligible total).

>> More about the EIDL + how to apply…

This was set up to replace a loss of income for small businesses that were running prior to 1/30/20, and can grant you up to $10k in funding. They are saying that once you apply, your qualified grant amount can be deposited into your business checking account within 3 business days! (However, in full transparency, I have yet to see a deposit for any of the businesses I work with hit anyone’s account–the earliest of which applied was applied for was on 3/30/20.)

The initially deposited amount (up to $10k) is considered a loan advance to provide economic relief to business that are currently experiencing a temporary loss of revenue. The loan advance will not have to be repaid.

You can apply for that HERE. It should take less than 10 minutes.

For the application, you’ll need:

Your EIN
Official date of starting your business
Your social security # and DOB
Your Gross Revenue for 2019 if you have it (If you did not start operating ’til January 2020, you’ll look at revenue for 1/1/20 – 1/31/20)
Your COGS for the same relevant-to-you dates (assuming your business uses COGS, which many do not).

After you receive an initial deposit into your banking account, my understanding is that you’ll receive correspondence from the SBA asking if you want to extend the loan to a larger amount. At that time, they may ask for more verifying data from your business. The interest on the extended portion will be up to 4% and a term of up to 30 years–but details will vary from case to case.

>> More info about the PPP loan…

The PPP loan was created to help small businesses keep their staff employed. (The assumption was the pandemic would create loss of revenue & new business which would force many employers to furlough or fire employees.) In conception, it’s a great offering as it will give your business 2.5x your businesses’ monthly payroll + benefits + provided healthcare costs.* Later, if you can show that this money paid for payroll, employer provided insurances, employer contributions to retirement plans, as well as state + local taxes on wages paid (plus that the wages paid by the company didn’t drop too much), the portions used toward paying payroll becomes 100% forgiven. If a portion of the loan is used to pay rent, utilities, or lease payments, the total of those expenses can be forgiven up to 25%. Personal guarantees have been waived. All that is required is a “good faith certification” that your business has been affected by the COVID-19 pandemic, your return, + payroll reports, and that the funds will be used according to the guidelines.

The Treasury has confirmed that the interest rate of this loan will be 1% and the maturity will be 2 years. If you use this money for payroll only, this loan essentially turns into a grant and you won’t be paying interest anyways.

For the application, you’ll need:

Your EIN
Official date of starting your business
The average of your monthly payroll in 2019 (look at gross wages + provided healthcare costs + employer provided retirement contributions + any state & local taxes paid on wages, and then divide by 12) -Number of employees paid via payroll (newest guidelines suggest you look at the average of 2019 for this)

Then, the additional requirements differ a bit from lender to lender. To complete your application, you’ll likely need:

Your latest business tax return
Payroll records for 2019 (I suggest starting with your 2019 940 form, though you may be asked for additional info)
Payroll journal reports from February & March for each payroll you ran in 2020

*Do not include employer paid taxes, nor any payment to independent contractors in this calculation.

>> Where to apply for the PPP loan…

Initially it was very much recommended that small businesses apply for the PPP loan through their own bank or credit institution. This has worked out well for some, but not for others. Generally speaking, those banking with a very small bank have fared well in getting PPP loan applications through. However, small businesses who bank at larger institutions (such as Wells Fargo, Chase & Bank of America) have had more challenges — some of these larger banks are now not even accepting more PPP applications at this moment. If you bank at a larger institution who will not take an application from you, you will probably not have luck with a small bank (as most of those were only accepting applications from their own former clients to begin with). I suggest either riding it out (I’ll spare all the details, but behind the scenes, it sounds like Wells Fargo & maybe others will be able to accept & process more PPP loans as some federal rules are relaxed in how much they’re allowed to lend) OR applying with either Fundera or Kabbage as they’re both accepting PPP applications online right now. You may also find a list by typing in your zip code on SBA’s website and looking to see if any local lenders are accepting PPP applications.

>> What if PPP funds run out before I get any?

The Treasury & government have publicly stated many times that they will add funds to the PPP loan if needed. In fact, supposedly they are looking to add more funds before the end of this week. I suggest going ahead & getting an application in as soon as possible.

>> But what about PPP if I operate as a Sole Prop? (or a 1-person business?)

Good question. Everything I’ve shared so far about PPP is geared toward a business with employees on payroll. Supposedly new guidelines for sole proprietorships & contractors are supposed to be released this Friday, 4/10/20. No one has yet to see the guidelines as to what will be looked at and what will be allowed in terms of loan amounts & possible forgiveness. My expectation is that it will be difficult to quantify one-person businesses that don’t run formal payrolls. I’d guess that if you operate this way & want financial assistance, that the EIDL loan might be the better pick for you.

>> Wrap-up

If you’re struggling financially, emotionally or spiritually during this unprecedented and strange time, please remember you’re not alone. Particularly when it comes to your business baby. Yes, there are a few businesses out there who are operating #BusinessAsUsual, but most are having to embrace fluidity, choose to pivot, or deeply re-evaluate. And that can be challenging. So be kind to yourself & your business. Embrace grace. Grace for yourself, for your business, and for others.

Hopefully these loan explanations & tips help bring some financial clarity into your world. (If you found it valuable, I ask that you share this with others.) PS. Did you catch the previous posts with thoughts & financial suggestions for how your business can get through the pandemic or U.S. Tax Return Updates + Additional Financial Resources? For the short-term, stay safe & be well!

Erin Armstrong is a Chief Financial Officer, Business Coach and Tax Strategist who’s on a mission to financially empower business owners.

Her unique, comprehensive approach integrates all the financial aspects of your business (such as accounting practices, tax strategy, profitability, budgeting, & cash flow) with an emphasis on developing a positive money mindset so you can move forward in a confident, proactive, and empowered way.