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Should disaster loan applicants wait for the Paycheck Protection Program to roll out first?


March 31, 2020
By Caitie Burkes
Originally Posted on Greater Baton Rouge Business Report

The online portal for business owners to apply for COVID-19 Economic Injury Disaster Loans is again functioning after security issues pushed the U.S. Small Business Administration to shut down the site last week, triggering Baton Rouge business owners to air their frustrations on social media. 

But some businesses might want to pull the brakes on applying for a disaster loan too soon anyway, says LABI President Stephen Waguespack, who recommends they instead wait for the Paycheck Protection Program to roll out.

It’s important to note that while businesses can apply for and receive both a PPP and an EIDL, they cannot be used for the same purpose. Businesses are still waiting for official SBA guidance, but it appears they could be able to roll the EIDL into forgivable and that the $10,000 grant would be accessible thru EDIL application.

“We urge folks to evaluate the 7(a) loan program first since it has the ability to convert to a grant and so that there is no risk of a duplication of benefits issue,” says Waguespack, who’s been fielding calls from businesses looking for reliable information on where and how to qualify for a loan, as well as banks looking for guidance from the U.S. Small Business Administration and the U.S. Department of Treasury on how to administer the loan program.

Included in the $2.2 trillion federal stimulus package, the PPP offers forgivable small business loans of up to $10 million, with interest rates no higher than 4%. The loans are forgivable if they’re used on payroll and other defined operating expenses in a defined time period.

Businesses that have had to furlough or lay people off can rehire those employees and use the PPP to cover payroll. Most local banks will be able to participate in the program, says Waguespack, though he urges people to reach out to their lenders first to confirm.

Meanwhile, EIDLs—which were made available prior to the CARES Act’s passage—are available at rates of 3.75% for up to $2 million. These loans can also be used on payroll and other defined operating expenses, but they are not forgivable.

“We recommend that companies do whatever they need to do today,” says BRAC President and CEO Adam Knapp. “The new 7(a) bank loan program will have better benefits and be faster we believe, but it doesn’t exist yet so businesses need to take advantage of the capital assistance program that best matches when they need it.”

Moreover, BRAC is worried that the SBA district office doesn’t have the capacity to handle calls. That—coupled with the fact that there is no official information yet about the new 7(a) loan program—has resulted in much confusion over what the SBA will consider forgivable and not forgivable, says Knapp, leaving many businesses to consult with their CPAs, banks and law firms for advice.

Among other questions BRAC has received recently:

  • It’s clear that CARES was meant to waive affiliation rules for restaurant franchises, but what about other types of companies with more than 500 total employees spread out across multiple locations? See affiliation rules here.
  • Can independent contractors factor into the payroll provisions of the Payroll Protection Plan? Yes.
  • When is the deadline for businesses to rehire workers who have been let go so that they can take advantage of the PPP? To be determined.

Editor’s Note: this story has been updated since its original publication to clarify that businesses might be able to roll an EIDL into their forgivable loan package, pending SBA guidance.