• FMG

PPP vs. EIDL vs. 7(a) Loan: Which Loan is Right for You?

Which Loan is Right For Your Business?

Even before the COVID-19 Pandemic, there were several loan options designed for businesses in need of financial assistance administered by the Small Business Administration. As a response to the pandemic however, congress had introduced another that you may have already become quite familiar with, the Paycheck Protection Program Loan, otherwise known as the PPP. Now businesses have 3 main loan options to consider, the PPP, the Economic Injury Disaster Loan Program, and the SBA’s 7a loan program. The PPP was designed specifically as a response to the pandemic, but the others may be viable options for your business as well.

Check out this blog from Fundera to learn more about which loan might be right for you! Or read some excerpts from it below:

Paycheck Protection Program Loans

The Paycheck Protection Program was created through the CARES Act, which was signed into law on March 27, 2020. Officially, the program became available to small business owners and sole proprietors on April 3, 2020, and extended to all self-employed workers and independent contractors on April 10, 2020.

The goal of the PPP is to give small businesses the capital needed to keep their employees on their payroll, as well as meet other financial obligations such as paying rent, mortgage interest, utilities, and addressing payments for existing debt (note that the last item is not eligible for loan forgiveness).

Though the SBA administers this program, borrowers must apply through SBA-accredited lenders, such as banks and credit unions.

Learn more about PPP

Economic Injury Disaster Loans

The Economic Injury Disaster Loan program is an existing SBA loan program that covers small business operating expenses after a declared disaster. In the case of the coronavirus outbreak, all U.S. states and territories have been declared disaster areas, which means businesses across the country are eligible to apply for an EIDL if they’ve been impacted by the novel coronavirus.

EIDLs can be used to pay fixed debts, payroll, accounts payable, and other bills. You cannot use EIDLs to replace lost sales or profits, or use it for business expansion.

The EIDL program received an additional $10 billion in funding through the CARES Act, in order to fund the immense loan volume as well as provide borrowers with a cash advance for immediate relief upon applying.

Unlike the PPP, you can apply for an EIDL directly with the SBA through their streamlined application process.

Learn more about EIDL

SBA 7(a) Loans

The SBA’s 7(a) loan program is another existing loan program that is typically geared toward businesses seeking to cover working capital and expand, improve, or otherwise grow their business in prosperous times. Other uses include financing debt or a seasonal line of credit. The 7(a) program is the SBA’s most popular loan program due to its relatively low interest rates and wide range of eligible uses.

Similar to the PPP, borrowers apply for an SBA 7(a) loan through an SBA-accredited lender. The SBA partially guarantees this loan, up to 85%, to encourage banks to approve small businesses for the funds they need.

SBA 7(a) loans are continuing to fund during the coronavirus pandemic. If you have not been negatively impacted by the pandemic and are seeking low-cost financing, there are few options better for a small business than an SBA 7(a) loan.

That being said, while the coronavirus business loans are not stringent about the businesses meeting certain qualifications other than having been in business before pandemic hit the U.S., 7(a) loans typically require business owners to have a good credit score, to be able to show solid business revenue and profitability, an acceptable debt service coverage ratio, a business plan, and collateral.

Learn more about SBA 7a Loans

Need assistance on deciding what loan is right for your business? Call us at 307-543-5084 or email us at today!