Congratulations on securing the EIDL Loan from the Small Business Administration. Now, it’s time to make the most of it by complying with the S.B.A. disbursement guidelines.
DISCLOSURE: The law was approved, but the implementation, understanding, interpretation of it will change daily.
The definition of permitted use of EIDL funds is broad. You can use the funds for financial obligations and operating expenses that could have met had the disaster not occurred.
Unlike the P.P.P. loan, which can only use for payroll, business mortgage interest, business rent or lease payments, and business utility payments. The EIDL loan funds can be used for a broader range of business working capital “to alleviate economic injury caused by a disaster occurring on January 31, 2020, and continuing after that.” That definition is a bit vague, but the S.B.A. has provided some additional guidance in supplemental materials.
What can I spend my EIDL Loan On?
The EIDL program is the least restrictive of the relief programs and allows you to use the Loan as working capital. It means any day-to-day expenses are a permissible use of your EIDL funds, giving you the freedom to spend it on anything like:
- Web hosting
- Office supplies
- Accounts payable
- Rent and utilities
- Merchant fees
- Fixed Debts (rent, etc.)
- Bookkeeping and accounting services
- Bills that could have paid had the disaster not occurred.
- Reasonable remuneration to owners
You can also use it to cover monthly financial obligations, such as loans and credit card payments. However, you cannot pay the entirety of the balance of these debts as it would consider refinancing, which is not a permissible use of EIDL funds.
What Can’t I Spend My EIDL Loan On?
While the most flexible of the relief programs, there are some significant restrictions to keep in mind. When you signed your loan agreement, you certified that EIDL funds would not be for any of the following:
- Dividends and bonuses
- Disbursements to owners (draws and distributions), except when directly related to the performance of services
- Repayment of stockholder/principal loans
- Expansion of facilities or acquisition of fixed assets (e.g., purchasing equipment such as a new camera)
- Repair or replacement of physical damages
- Refinancing long term debt (e.g., paying off previous substantial credit card debt)
- Paying down federal loans (from the S.B.A. or other federal agencies)
You’ll have to keep track of how you use these loan funds. Some people have set up a separate business account for operating expenses. (Book Your Free Assessment to come up with a game plan here)
Books and Records
The S.B.A. requires that you keep books and records “for the most recent five years until three years after the date of maturity, including extensions, or the date this Loan is paid in full, whichever occurs first.” Also, you will have to keep “itemized receipts (paid receipts, paid invoices or canceled checks) and contracts for all loan funds spent.” In short, it’s as important as ever to keep good records.
Misuse of Loan Funds
Anyone who wrongfully misapplies any proceeds of the Loan will be civilly liable to S.B.A. for one and one-half times the proceeds disbursed and other remedies allowed by law.
For more specialized tips tailored to you about your EIDL loan and more, contact us at Palma Financial. With over 20 years of experience, we have the knowledge and expertise to guide you in all parts of your financial journey. Contact us by phone or online or schedule your initial consultation here. We look forward to serving you!