EIDL vs. PPP Loans: What's the Difference?

Q: What’s the difference between an EIDL loan and a PPP loan?

An EIDL loan is designed to help businesses continue covering operating expenses when their normal operations are upended due to a declared disaster. In 2020, the program offered a second option for businesses negatively impacted by COVID-19. A COVID-19 EIDL comes with a 30-year term, and there's a two-year deferment period before you have to start making payments. The maximum loan amount is $2 million. EIDL loan applications go directly through the SBA. The Paycheck Protection Program was enacted to help businesses keep employees on staff during the COviD-19 pandemic by incentivizing them with forgivable loans. In order to be forgiven, businesses must use at least 60% of the funds on payroll, and all funds must be used for eligible expenses. In the first PPP round, the maximum loan amount was $10 million. In the second round, the maximum loan amount was $2 million. Instead of applying through the SBA, businesses applied with private lenders who service the loans.

Q: PPP vs. EIDL: What are the terms for each loan?

A regular EIDL loan comes with a term up to 30 years, depending on the applicant’s ability to repay the funds. A COVID-19 EIDL comes with a 30-year term. For the Paycheck Protection Program, any loans issued before June 5, 2020 come with a two-year term. Any loans after that date came with a five-year repayment term. However, payments are deferred until 10 months after the loan’s covered period, which could last anywhere between eight and 24 weeks. Borrowers can apply for forgiveness before the 10-month period expires to avoid having to repay the PPP funds.

Q: What do I need to do to apply for each loan?

For an EIDL loan, you apply through SBA.gov. Once logged in and registered, you select the appropriate disaster declaration for your business. Unless you’re a sole proprietor, you also need to include a personal financial statement, statement of liabilities, IRS 4506T form, and tax information. There’s also a streamlined application process for COVID-19 EIDL loans, which is designed to take up much less time. The Paycheck Protection Program was administered through private lenders; however, new funding is no longer available.

EIDL vs. PPP Loans: What’s the Difference?

Lauren WardUpdated December 16, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Note: The Small Business Administration (SBA) is no longer accepting new applications for COVID-19 Economic Injury Disaster Loans, reconsidering denied requests, or increasing requests. The SBA is offering a Hardship Accommodation Plan for EIDL borrowers experiencing short-term financial challenges. Borrowers eligible for this plan may make reduced payments for six months. Businesses across the country faced serious challenges since 2020, from the COVID-19 pandemic to natural disasters from coast to coast. The federal government has implemented multiple funding programs to help companies access the capital they need to survive major uncertainties. The Economic Injury Disaster Loan (EIDL) had programs available for both COVID and non-COVID-related disasters. The Paycheck Protection Program (PPP) offered two rounds of forgivable loans to help companies in the wake of the pandemic.

What Is an EIDL Loan?

An Economic Injury Disaster Loan (or EIDL) is a type of relief reserved for small businesses located in a declared disaster area. Eligible companies may apply for an EIDL of up to $2 million. The funds must be used to pay for financial obligations and expenses that arose directly from the disaster. An EIDL does not, however, cover property damage. Separate assistance is available in the form of a Business Physical Disaster Loan.Currently, the Small Business Administration (SBA) offers COVID-19 EIDL Loans and non-COVID EIDL relief loans. Unlike standard SBA loans that go through private lenders, EIDL loans can be applied for directly through the SBA website. If your business has been impacted by a disaster, you can search the declarations page to find out if your area has been declared a disaster by the president or SBA. Recommended: What Does EIDL Stand For & What Is It?

How Do EIDL Loans Work?

Like other types of SBA loans, EIDL loans are available to small businesses that can’t get business financing elsewhere. While the maximum loan amount is $2 million, a business’s actual loan depends on the severity of the disaster’s financial impact. If you previously applied for a COVID-19 EIDL, you might also have been told you were eligible for a Targeted Advance and/or Supplemental Targeted Advance. The maximum you could get for both Advances, combined, is $15,000. Unlike the EIDL itself, the Advances did not need to be paid back. Collateral is required for loans over $25,000, with a preference for real estate to secure the loan. However, if the loan is under $200,000 then other assets may be used in place of the owner’s primary residence. The funds may be used for working capital and normal expenses. The repayment term can last up to 30 years and the maximum interest rate is 4%. Additionally, EIDL loans don’t come with any prepayment penalties or fees.Most successful borrowers receive EIDL funds within 21 days of approval.

How Do I Qualify for an EIDL?

You can apply for an EIDL loan online. Then the SBA will send an inspector to assess the cost of damage. To qualify, a business must demonstrate that it cannot meet its financial obligations or pay operating expenses.In addition to submitting an online application, you must also complete IRS Form 4506-T. This gives the SBA clearance to access and review your company’s past federal tax returns.There were additional requirements for Targeted Advances that included operating in a low-income area and meeting standards for company size.Recommended: Applying for & Getting Small Business Loans

What Is a PPP Loan?

The first round of the Paycheck Protection Program (PPP) began in April 2020 as a way to inject capital into businesses suffering from the economic impact of COVID-19. Qualification requirements were lax. Additionally, borrowers that used at least 60% of the funds for payroll could qualify to have the funds completely forgiven. In 2021, a second round of PPP funding opened up through the end of May, this time with stricter requirements. Businesses had to demonstrate a 25% decrease in gross receipts between comparable quarters in 2019 and 2020. Again, funds may be forgiven when at least 60% is used on payroll expenses.

How Do PPP Loans Work?

In order to qualify for the second draw of PPP loans, businesses must have used any funds acquired from the first round, and only for authorized purposes. In addition to meeting the gross receipts requirements, eligible businesses could have no more than 300 employees. Eligible loan amounts were determined as 2.5X average monthly payroll costs. First round loans were limited to $10 million while second round loans were limited to $2 million. Businesses in either the accommodations or food services industries could qualify for 3.5X payroll costs (but still with a $2 million maximum).Rather than going through the SBA, PPP loans are serviced by private lenders who offer small business loans.Once they are approved and the funds have been used, borrowers can apply for loan forgiveness. This must be done no later than 10 months after the covered period ends. If you neglect to apply for forgiveness within this timeframe, you have to start making loan payments.

EIDL vs. PPP

To understand the similarities and differences of the two loan programs, it may help to see them side by side.

Feature	EIDL	PPP
Maximum loan amount	$2 million	$2 million to $10 million (depending on which round)
Interest rate	0.0375	0.01
Forgivable?	No (except for Advances)	Yes
Collateral required?	Yes (for loans above $25,000)	No
How to apply	SBA.gov	Through private lenders

How to Apply for an EIDL

The SBA outlines three steps to apply for an EIDL loan.

Check if there has been a disaster issued in your area.
If so, you can apply online directly through SBA.gov.
Then log onto your account and check your email for updates on your loan status.

There is a separate application process for COVID-19 EIDL loans. Also, there is a two-year deferment period before you have to start paying back a COVID-19 EIDL loan, though you may incur interest during that period.Businesses may apply for up to $2 million in these loans to help with economic injury over a 24-month period. The fixed interest rate is 3.75%. An EIDL loan requires collateral for amounts over $25,000.

The Takeaway

Not every business is eligible for a COVID-19 EIDL, and PPP funds are no longer being disbursed. If you don’t think these loans are right for your small business, there are more possibilities out there. Lantern by SoFi can help. Explore your options for giving your business an injection of capital. Compare small business loan offers from multiple lenders today.

Image credit: iStock/oatawa

Frequently Asked Questions

What’s the difference between an EIDL loan and a PPP loan?

PPP vs. EIDL: What are the terms for each loan?

What do I need to do to apply for each loan?

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About the Author

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.

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