Recent discussion in the small-business world focuses on the means available to combat the growing economic effects stemming from the COVID-19 pandemic. The bulk of these discussions, as well as recent legislation, revolves around loans available through the US Small Business Administration (SBA). The two loan programs most discussed presently are the (1) Paycheck Protection Program (via recent CARES Act) and (2) Economic Injury Disaster Loan Program. While both could help your small business, the two programs are different, and offer different opportunities and terms to small businesses.
Below is just a brief summary of the noteworthy differences. Please review our article on the Paycheck Protection Program here for more information on this SBA Program.
Used of Proceeds:
Under the Paycheck Protection Program, loan proceeds may be used for any of the following:
- Debt obligations incurred prior to February 15, 2020
- Employee salaries
- Mortgage interest
Under the Economic Injury Disaster Loan Program, loan proceeds may be used for any of the following:
- Fixed debts
- Accounts payable
- Other expenses that can not be paid because of the impact of COVID-19
Amount of Loan:
Under the Paycheck Protection Program, loan amounts are equal to up to the lesser of: (i) 2.5 times average monthly payroll costs based on the prior year’s payroll costs (as defined, not including compensation in excess of $100,000) plus other disaster loans taken out after January 1, 2020, or (ii) $10,000,000.
Under the Economic Injury Disaster Loan Program, loan amounts are limited to $2,000,000.
Under the Paycheck Protection Program, loan interest rates are capped at 4.0%, whether for a small business or an eligible non-profit.
Under the Economic Injury Disaster Loan Program, loan interest rates are set at 3.75% for small businesses, and 2.75% for eligible non-profits.
Under the Paycheck Protection Program, loan terms are up to ten years, with no payments the first 6 to 12 months through deferral.
Under the Economic Injury Disaster Loan Program, loan terms are up to thirty years.
Loan Forgiveness (MOST IMPORTANT):
Under the Paycheck Protection Program, 100% of the loan may be forgivable. The expected forgiveness amount is the amount of principal that a lender reasonably expects a borrower to expend between February 15, 2020, and June 30, 2020, on payroll, mortgage payments (does not include mortgage on real or personal property acquired in ordinary course of business that was incurred before February 15, 2020), covered rent obligations, and covered utility payments. Forgiveness of Covered Loan amounts under the Program shall be considered canceled indebtedness. The amount forgiven may not exceed the principal amount of the loan. See our article here on the Payroll Protection Program for more information.
Under the Economic Injury Disaster Loan Program, none of the loan is forgivable.
Who should I contact with questions?
As always, CLG is ready to assist you in any way we can and will answer any questions you may have for your small business needs. If you do not know of an SBA-approved lender, please contact us today and we will work with you to locate an SBA-approved lender. Additionally, should you have any questions on qualification for the Paycheck Protection Program, or other programs available from the Small Business Administration, please contact us via telephone at 405-232-2020 or e-mail with any of your business needs.
About the Author
Jon M. Miles, J.D. is a Director at Christensen Law Group, PLLC. He is an expert in litigation, banking, business transactions, agriculture, oil and gas, and bankruptcy. You can read more about him and his legal experience here.