Paycheck Protection Program Loans vs. Economic Injury Disaster Loans; Which is Better for Your Wisconsin Business?

The Small Business Administration (SBA) is providing two major loan programs for small businesses to borrow money during the COVID-19 pandemic. They are:

Both the PPP and EIDL are designed to provide small businesses with relief and to help them survive the current economy.

What is the difference between the PPP and EIDL?

Small business borrowers can receive both a PPP loan and an EIDL, but the borrower should be aware that the two loans cannot be used for the same purpose.

If a borrower has already received an EIDL for a COVID-19 reason, but is interested in applying for a PPP loan, the borrower can also refinance the EIDL into the PPP loan.

Take note of the differences between these two loans.

PPP loan key features:

  • Up to $10 million (based on 250% of the previous year’s average monthly payroll costs)
  • Can be fully forgiven (if used to cover payroll, mortgage interest, rent, and utilities)
  • Payments deferred for 6 months (interest does accrue during deferral period)
  • 2-year term for any unforgiven amount
  • Interest rate of 1.0%
  • No personal guarantee
  • No collateral

EIDL program key features:

  • Up to $2 million (based on actual economic injury)
  • $10,000 advance that does not have to be repaid
  • Term up to 30 years (determined on a case-by-case basis)
  • Interest rate of 3.75%
  • Personal guarantee for loans greater than $200,000
  • Collateral for loans greater than $25,000

How does a business owner choose the right loan?

The first thing a business owner needs to do is to determine is how much money the borrower can receive under the PPP loan.

If the borrower is eligible to receive more than $2 million, then the PPP loan is likely the better option.

An EIDL would not cover enough payroll costs to justify choosing the EIDL over the PPP loan.

What if the borrower is only eligible to receive $2 million or less? The PPP loan is still more attractive because it can be entirely forgiven, whereas only $10,000 of the EIDL is forgiven.

Keep in mind that the SBA has released guidance that at least 75% of the PPP loan should be spent on payroll to ensure full forgiveness. Also, the PPP loan does not require a guarantee or collateral, whereas an EIDL does require a guarantee and collateral in some situations.

Moreover, in making the determination on which loan to apply for, a borrower should consider the fact that, through the PPP loan, it is effectively receiving 2.5 months’ (roughly 10-11 weeks) worth of payroll costs, but need to spend that in a period of 8 weeks to get the loan fully forgiven.

So even if its monthly payroll costs (as determined by the PPP loan) are less than its actual monthly payroll costs, the reduced period in which the borrower must spend the money could result in the PPP loan fully covering their actual payroll costs for that 8-week period.

What should Wisconsin businesses be doing right now?

Borrowers of either loan should be doing the following:

  • Determine current actual payroll costs (and projected actual payroll costs) for the next 8 weeks.
  • Determine the amount for which the borrower is eligible through the PPP loan.
  • Determine what the borrower will spend the loan money on. Options are:
    • payroll
    • rent
    • mortgage interest
    • utilities
    • something else
  • If the borrower is going to spend the money on a, b, c, and d (above) -- and mostly on payroll (a) -- then the PPP loan is probably the best choice no matter what amount it could receive under either loan program.

When is the EIDL a better choice for the borrower?

The EIDL could be the appropriate choice if a borrower only needs $10,000, because the first $10,000 does not need to be repaid.

Or perhaps the borrower needs a loan to continue a project (e.g. building/expanding a facility) that isn’t covered under the PPP’s loan forgiveness. In that case, the EIDL terms of the loan make it more attractive than the PPP loan.

Contact a business lawyer to help you with your loan process

The business lawyers at Murphy Desmond are available to assist you with determining the best loan for your situation. In addition, we can help you with the grant process offered by the Wisconsin Economic and Development Corporation (WEDC). Contact us at or 608.257.7181. We have offices in Madison, Janesville, Appleton, and Dodgeville, Wisconsin, to serve you for all your business and personal legal needs.

Revised April 3, 2020