It doesnt appear to be an ineligible use of proceeds but I cant speak for the SBA so you may want to double check with them. a reasonable use of these funds. The Interim Final Rule from the SBA describes on the first page which changes are applicable when. Business is slower so can I pay myself the offset amount I normally make a month. Just a small cleaning business. If not, you have to figure out the reasonable compensation for you. How would I calculate?, Im wondering if there is a limit on how much we can repay ourselves with this loan for lost wages?, It seems clear you cant pay yourself unless its for work you do in your business. Others lump it together with the term expanding your business. As for reimbursing yourself for money you paid via savings, the guidelines dont get that specific. I have applied for an EIDL Loan. Perri I dont want to speak for the SBA so I recommend you talk to them to find out whether this would be an acceptable use of funds. Others seem to think it merely refers to a change in your business address regardless if its in the same county. 2) Ive been using the proceed to pay my monthly car loan and phone bill so far that I use for my business. 1. Thanks! Great article! I am a family childcare provider who operates in my home. Id recommend you reach out to them. Can we pay down the mortgage? (Keep in mind that with EIDL, the borrower doesnt ask for a specific loan amount; instead the SBA will calculate it based on its formulas for determining economic injury.) Im so confused now. In the past, SBA guidelines appeared to prohibit paying off or refinancing long-term debt with EIDL proceeds. First, buying a home clearly falls outside the intended uses of EIDL. My question is can I use my eidl funds to pay my monthly mortgage? Do not rely on this article for specific information on how to properly spend your EIDL funds. (The EIDL grant does not have to be repaid.) ), Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. Similarly, paying the mortgage on your commercial property or even a rental property may be acceptable as these fall under fixed debt payments necessary to maintain the current status of long term debts.. Do you think this will be okay? If you do, please come back and share with us what they told you. Paying yourself and your employees (if you have them) is not only legitimate but necessary to keep your business running. I am finally able to rent court time again to give lessons but it now appears they may close again any day due to the recent surge in new cases/hospitalizations in my county. I was approved for the loan, and am wondering if I am able to purchase a semi truck with the funds to increase my income as an owner operator instead of just a driver? Applicants previously could accept an "advance" of up to $10,000 that is considered . Trying not to misuse these funds! PPP loans may depending on your lenders policies. Please tell me if this is right or wrong.. A friend has a business he wants to sell me. The following examples come from the section of the SOP (page 186-187, abbreviated here) that relates to calculating economic injury: To-date needs are normal obligations already incurred (usually reflected as liabilities on the most recent available post-disaster balance sheet), which the business is presently unable to pay as a result of the disaster. Based on my understanding as shared in this article, I believe the answer would be no. Hi! I understand you cannot use the loan for purchasing a vehicle/ can you use the loan for paying your monthly car insurance & car loan payments during the months your business is effected by Covid-19? Here's how: Go to the Transactions menu. I am an independent contractor and all of my business dried up with the pandemic. seems to slightly conflict with the first part and you provided no VERDICT: You state a borrower who doesnt need it should consider returning the funds conflicts with the prior statement It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. Based on what you are trying to do those expenses could be problematic. Learn how to monitor the status of your COVID-19 EIDL, make payments, and request servicing actions. for customers may be normal working capital expenses. I am an uber driver. She has testified before Congress on consumer credit legislation. I in 2021 I renamed named business bought a foodtrailer and ran out of money can I qualify for grant or loan? If I received 31800 can I borrow from that money and later replace it. Do you think EIDL can be used as a down payment to flip a house by a professional house flipping company. My payments are extremely high and I can not go on making that payment. I have a Business Loan(SBA LOAN) in payment. If you want to use EIDL proceeds that way, refer to page 75 of the SOP.). Have at it! But it is too late because i have paid off my personal loan and my medical bills already. The COVID-19 pandemic was an unprecedented, nationwide disaster. You must have your 10-digit loan number and a payment amount in order to pay it back. If your car payments are normal business expenses it would seem they would fall under the definition of working capital expenses. They will sometimes be a continuation of to-date needs, such as: (1) Fixed debt payments necessary to maintain the current status of long term debts; or (2) Payments of ongoing fixed expenses such as rent; utilities; insurance premiums; or the owners draw/salary when the draw is both normal and essential. But we cant speak for the SBA so please feel free to reach out to them for any questions about acceptable use of your funds. Based on the new forgiveness application form 3508EZ if you received your PPP loan on or before June 5, 2020, you may choose an 8-week Covered Period or a 24-week Covered Period. Compare Your Financing Options With Confidence. I dot see why that would be an issue but I dont work for the SBA so feel free to check with them or one of their resource partners if you have questions. Can EDIL loan be used to make repairs and pay off the mortgage? Try it. This helps. They also correctly observe that the guidance isnt exactly crystal clear, and is especially confusing for independent contractors and the self-employed who may have limited knowledge of small business accounting and terms like working capital that are often associated with financial statements. Thanks for the information. Thank you for your time. I cant speak for the SBA so I cant advise about specific uses of funds. Uber driver independent contractor can I use my eidl loan on my car and insurance also gas and snakes for my customers. Alternatively you can ask your SBA resource partner (SBDC or SCORE mentor). Hello Kelly I havent found good information on that question either. I assume that would fall under that category but I dont work for the SBA so please reach out tot them directly to get an answer. If you have specific questions Id encourage you to reach out to the SBA or an SBA resource partner such as those described in this story. Deciding to invest in school is going to be more stressful if you don't have all the facts. Could you please offer some insight? It can be used to cover normal working capital expenses. I was using my home but during covid I would like to move my operations outside my house in oder to keep my family safe during the pandemic. Right now, our business is renting 2 units. Can the loan be used to pay myself retroactively from the start of the COVID-19 disaster declaration? Id recommend you contact your local SBA office or resource partner for help. 2. If your PPP loan is forgiven its doubtful it will report. It says: The changes to the regulation at 13 CFR 123.303 apply to COVID EIDL loan proceeds available on or after September 8, 2021, without regard to the date such proceeds were received from SBA. Later youll see that section refers to how loan proceeds may be used. A certain percentage of my house payment gets written off on my taxes. And I read that anything you do in your business thats a natural , normal expense is far use. To address your questions: 1. Can I use EIDL Loan to replace an engine on a broken down work van to get it operating again? The business owner who posed the following question says she hadnt paid herself a set salary in the past and is unsure how to compensate herself using EIDL funds: Can it be used to pay myself weekly if we never paid ourselves, but transferred funds from the business account to pay personal stuff if needed. I havent seen anything in the guidance that addresses this question. You can always check with them. My understanding is no you cant purchase a van outright with the EIDL funds though you may be able to use it to make payments. , where these loans have been a popular topic of discussion. After all, he SOP states that EIDL cant be used to pay: Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant.. The cost of ordering summer inventory represents an additional need., Ineligible Use of EIDL Funds / What You Cannot Use EIDL On. Thank you so much for this clearly written article that has been of help. How long do you have to accept the EDIL before you application is withdrawn? Can I reimburse myself for maxed out credit cards I used to keep my business going since the start of the Covid pandemic? Unlike the Paycheck Protection Program, a COVID EIDL loan is not forgivable. the SBA reps dont have answers either. To help differentiate the funds from the rest of your expenses, the SBA recommends keeping the EIDL money in a separate account. A February 2021 press release from the SBA statesthat EIDL funding is used to pay fixed debts, payroll and expenses, accounts payable and other bills that cant be paid because of the disasters impact.. According to new changes on SBA website, It states that proceeds can be used and to pay business debt incurred at any time (past, present, or future). Hi Gerri, thanks for such great information. Paycheck Protection Program. Can I use my loan to buy a retail space? Am I able to payoff the private loan with the EDIL funds? We cant advise you specifically though it seems that generally that car payments, insurance and gas would be normal working capital expenses for an Uber driver. They dont answer every question in nitty gritty detail. Although their work was directly responsible for new revenue, can I still label payments from my company to them as coming from the EIDL money? Bill As I noted in the article: Economic injury loan proceeds can only be used for working capital necessary to carry the concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury (emphasis added). I dont think prepaying debt sounds like it fits in that category but I cant speak for the SBA. note EIDL on those expenditures and keep a file or attach receipts. Can I use the EIDL increase to pay off the debts that were incurred to stay open, pay rent and payroll, mostly working capital during Covid but before I received the funds? I am an Uber/lyft driver and was approved for over 100k. Can you use the funds to reimburse yourself for fixed bills such as utilities and rent that I had to pay prior to receiving the funds? If your business is physically closed, maybe you can take this time to work on your website, accounting, social media advertising campaigns, marketing etc. If you have specific questions I suggest you reach out to the SBA or an SBA resource partner such as your SBA local office, SBDC or SCORE. While EIDL funds cannot be used to make direct payments to owners, pay bonuses, or pay dividends to shareholders, EIDL funds can be used for payroll. Tesssa We cant speak for the SBA so we recommend you contact the SBA or an SBA resource partner if you have questions about your specific situation. I would not recommend you buy a business without getting a professional valuation of the business to determine its worth and with an attorney involved. Thanks for your insights. Can I transfer this loan to the new owner. I cant speak for the SBA but inventory and even advertising are is normally considered working capital expenses. I have 2 questions regarding spending the EIDL Loan. As such, processing times for these loans took much longer than usual. One reader asks whether EIDL can be used to pay shop rent and that seems to be a very reasonable use of working capital funds. 4. Ill note that many sole proprietors are paying themselves (usual compensation) with EIDL funds so it may make more sense to just pay that out of your personal funds. I know it may be confusing but hopefully you understand my question. Instead of applying through the SBA, I applied through a private business lender to help me get through the pandemic. GREAT article! However, she wont respond to my questions of what she is planning to do with the money. It seems clear you cant pay yourself unless its for work you do in your business. I woukd like to use the loan to continue with a establish a safe place to continue operating my family childcare in my home. I recommend you reach out to the SBA or one of its resource partners. More info here. My business is operated out of my home. I received an EIDL fund of less than $200,000.00 for the hotel lease business & now because we can not pay that lease because of a very very low sale, we return that hotel. I gotten in my eidil targeted advance loan of the 9K Our interest rate is higher than 3.75%, and isnt amortized for 30 years. (A business cash advance may be different but Id check with them.). Appreciate you compiling it all for us. If not, we wont have a business to spend the money on. If Im approved for the EIDL Loan, can I use some of the funds to pay a portion, or all, of the backpay owed to me, if theres enough funds available for me to do so? We cant speak for them unfortunately. Remember that ineligible uses of EIDL proceeds include acquisition of fixed assets and fixed assets usually include vehicles. EIDL loans werent created just for the coronavirus economic crisis. There is also confusion about documentation required. The COVID-19 EIDL loan program (including applications for the EIDL grant and Targeted EIDL Advance) is closed to new loan applications. I own a home daycare and would like to hire my 13 year old daughter to assist me in my day to day operations/ can I use the EIDL funds to pay her? Thank you for this very informational article. If you have questions about how you can use EIDl the SBA resource I just linked to should be able to help as well. It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. Can I used the EDIL to pay for training and certification? Can you use the PPP to pay salary for the covered period, and the EIDL to pay salary AFTER that period? Late December I finally followed up and accepted the small loan. I now know though I was approved for a PPP loan that was utilized 100% to payroll costs, I may use the EIDL for payroll as well. Can I Put My EIDL Loan In A Savings Account? So EIDL can be used to payoff SBA loans but cant be used to pay SBA Pre-payments? But Id check with the SBA or your tax professional about any specific questions. Overall, the SBA approved about 3.9 million loans . Id recommend you talk with your state unemployment office. I tried to address your question about payroll in #1 in this article. 2. Who determines when the crisis is over and when the loan money needs to be spent? I dont know who you are trying to reach Darlene for help but if you havent done so already, I suggest you find help through your local Small Business Development Center or SCORE. I applied for an EDIL loan and was approved. Hi David It is confusing! I know it says paying fixed debt is an acceptable use. Thanks again. Great article. Once you start paying the loan, the payment for the loan capital will be categorized as Business Loans. Im glad it was helpful. : My entity (C-corp) that is requesting the EIDL loan is operating from a building and pays rent to a separate entity (LLC) that owns the building. You can certainly reference page 75 of the SOP as a guide. Thank you for this informative article. Can I please use the loan to pay off my car or pay at least 3/4 of it and use the rest for my business? This article details options for getting help with EIDL loans. It is a business vehicle not a credit card. If want to buy a house can I apply for a loan to buy a house? SBA EIDL Loan. I took out $30k second mortgage loan, a $10k unsecured loan and used my credit cards to survive downturn in my business during Covid. Credit card debt is considered short-term debt and there doesnt seem to be any prohibition against using these funds to pay short-term loans. Snacks (?) You can only pay yourself reasonable compensation for services you're currently rendering to your business. Thank you. (I am not sure what you mean by it is clear we cannot use the EIDL to pay the building center directly I am not sure what type of expenses you are referring to for the building center?). Ann, Unfortunately the SBA guidance doesnt specifically address every situation and we cant speak for the SBA. After all, the SOP states that EIDL can't be used to pay: "Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant." But thank you for the dry reading. He also lost gear due to this. Use Nav to find the right accounting solution for your business. I would like to use loan proceeds to pay employees salaries, rent etc. However they dont detail every scenario and since I dont work for the SBA I dont feel comfortable providing specific advice. Can I accept this small loan/ grant? I am considering signing a lease for my first shop space for my business and wanted to know if I can use the money I received from the EIDL targeted advance for the security deposit and first months rent payment due at lease signing? Mike I would recommend you get legal advice. Jo the SBA has not released specific guidelines to answer your question. I have been approved for a PPP second round loan and will receive those funds soon. Michael Ive tried to share guidance based on the Standard Operating Procedures (SOP) for Disaster Loans which you can read here. Those are all great questions. What Can I Use the EIDL Funds For | How to Use SBA. And thanks for the kind words Susan! Hi Gerri Hi Goodmorning I had a quick question regarding EIDL loan. In a smaller, more local disaster, EIDL program loans may fund in a matter of weeks. They include funds necessary to bring delinquencies current and to restore working capital to normal levels (emphasis added), Future needs are normal obligations, which the business would not be able to meet throughout the remainder of the injury period. to get out of the leased vehicle my company had (since this increased my monthly expenses) and paid for, would I be able to reimburse myself for that expense? She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. , "What can I use the SBA EIDL loan for? As for other small business loans, Nav can help match your business to other loans but whether or not they will have a low interest rate will depend on an number of factors including credit scores, revenues, time in business etc. My business was impacted mildly and have resumed 80%.. i used my PPP for all payroll Can i continue to use my EDIL for payroll, even if i am collecting income Also i have a 50,000 line of credit can i pay this off. Hello I was wondering if my companys normal business is fix and flip real estate properties , mostly single-family , is that considered proper use of the EIDL funds.. Jeff Id suggest you talk with the SBA or your tax professional. The COVID-19 economic crisis is still creating problems for some businesses. 3. Id consult with them or your tax professional for specific advice. Due to covid, I had to use my personal savings and retirement funds to keep the business afloat, pay our other employees, independent contractors and expenses. Great question. Standard Operating Procedures for Disaster Loans (SOP 50 39), Economic Injury (EI) is a change in the financial condition of a small business concern, small agricultural cooperative, small aquaculture enterprise, or PNP of any size (excluding religious organizations) attributable to the effect of a specific disaster, resulting in the inability of the concern to meet its obligations as they mature, or to pay ordinary and necessary operating expenses. Your answer to the question Is There a Deadline to Spend EIDL Funds? Also, if I CAN start paying the new employee immediately, once the PPP payments to myself run out, can I add myself to the payroll coming from the EIDL? 3) we have a roof that needs to be replaced now on on of our older properties. EIDL should not. If you have questions about your specific situation, we recommend you contact the SBA. Thank you very much. Can I use this to pay my light bill? I have a question regarding EIDL loan. And what if we do make disbursement after 6 months? I have read about funds not being able to be used for relocation and Im wondering if you have a broader understanding of that term? Hope it helps! Will paying off debt be ok if that debt was incurred during Covid. I am planning to earmark EIDL funds to pay for work done by independent contractors (1099). My first question: Can I pay myself a lump sum based on my 2019 Schedule C, Line 31? Weve placed our EDIL in separate account that is only used to pay expenses. (See the callout in the article.) Normal expenses incurred to run your business are fine. Just as there have been audits and inspections of past disasters, there will be scrutiny of some of these loans as well. Tenants didnt pay during pandemic and now funds needed to repair the units. Ive seen different interpretations of whether we can use our Revenue for items excluded from use from the EDIL. I have recently applied for and received a EIDG and EIDL for my small business. Do you have any advise for me? Thank you for your time to help and answer all of us. Hi Jeff I am hesitant to advise on specific situations as I dont work for the SBA. Can i used the sba loan for buy two car for my business like uber or taxi? While the SBA published some guidance describing how EIDL proceeds may be used (and has updated that over time), it never published a guide for business owners describing how to use EIDL loans. Spending those funds on a different business could be problematic. What will happen to any left over funds if not all used within that timeframe? If you really want to understand these loans, you have to look at the history of this program. Your second question is in my point #2. (Later the SBA allowed self-employed borrowers to qualify based on gross revenue, instead of net profit.) News flash! In fact, theyve been part of the SBAs Disaster Loan program for many years. For those who dont pay themselves a salary, you may want to look at what you have taken out in the past as owners draw, disbursements, or as profits. Several readers have asked whether they have to spend EIDL funds within a certain period of time. Paying down (including regular installment payments) or paying off loans provided, or owned by another Federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act. We had started to renovate the garage prior to covid 19 and would like to use this money to.complete the project based on safety protocol. This article describes how to get help with your questions about EIDL. But keep in mind the purposes of this loan. Im a single member LLC and recently received an EIDL loan. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers. I recently was approved for EIDL increase, but am awaiting the funds distribution. Essentially, you can pay down the entire outstanding balance of a commercial loan obtained through traditional lenders with your EIDL funds. Hi Gerri, Thanks for responding. As a sole proprietor Ive looked high and low trying to find expert advice on how I can use the EIDL for my small trucking company. You can apply for PPP loans and other SBA loans, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans. There is no prepayment penalty. This article currently has 1191 ratings with an average of 4.5 stars. I havent seen that specific question addressed in guidance. EIDL proceeds may not be used for: Thank you. The SBAs published guidance did not address this question. Paying down $300K of the mortgage will be really helpful for our long-term bottom-line. We recommend you talk with the SBA or your accounting professional if you have specific questions about your situation. See what I wrote in #2 and #4 of this article. Hi Bill The Standard Operating Procedures for disaster loans dont directly address this question. Im an owner and employee of my business. This was truly the most helpful informational I have been able to find. This business has also been shut down due to the virus. I want to sell my business which has an EIDL loan. The website you can use to repay your EIDL loan can be found at Pay.gov. other SBA loans). ; (2) Accelerated debt due to the disaster; (3) Inventory replacement may be an extraordinary item. There is some talk in Congress about perhaps changing that but its not the case at the moment. (All of these must be related to work youre doing for the business.) Otherwise, the article is a wonderful summary of EIDL requirements in easy-to-understand language. Can I Use EIDL to Start a New Business? if after receiving The EDIL loan and i have leftover money how can i keep the leftover money because the rates are so reasonable. Also, am I able to reimburse for utilities that I borrowed from my savings to stay afloat? On the other hand, a reader who works from home wants to know if its acceptable to use EIDL to pay rent. Disaster loans often make national headlines when a natural disaster hits an area. Youll see the guidelines starting on page 75. I rent spaces now. I received a PPP loan and a EDIL loan. Verdict: Yes, except to prepay certain federal debts. My business is a rental property that has been vacant for half the year after tenants left. Id suggest you talk to the SBA or your SBDC. Id suggest you ask the SBA or your tax professional. The SBA is also no longer accepting reconsideration applications. I understand you can receive both an EIDL and PPP loan, but cant use them for the same purposes. However, being fearful of what expenses can or cannot be used, I have loaned my company several thousand in the interim to keep payroll, short term expenses and day to day expenses. And since you cant relocate it could be an ever bigger issue. If the funds are not used properly that could create liability issues. Id recommend you reach out to your SBA District office to see if they can advise. Its all a guessing game and a crap shoot at best. Not released specific guidelines to answer your question about payroll in # 1 in this article SBA or! Could be an ever bigger issue ; what can I qualify for grant or loan who from! Which has an EIDL loan on my understanding as shared in this article options... To payoff SBA loans but cant be used as a guide SBA dont! Specific question addressed in guidance matter of weeks during Covid it is late. On those expenditures and keep a file or attach receipts do, please come back share! Question either that has been of help a establish a safe place to operating... There doesnt seem to be replaced now on on of our older properties ; s how Go... Money how can I keep the leftover money how can I use for my customers debt like... 2021 I renamed named business bought a foodtrailer and ran out of money can I pay the... Salaries, rent etc down work van to get it operating again has a business to EIDL. Than usual on my taxes of net profit. ) paid via savings, payment. Far use am a family childcare provider who operates in my home truly the helpful... School is going to be replaced now on on of our older properties car for my customers EIDL. Scenario and since I dont work for the SBA guidance doesnt specifically address every situation we! S how: Go to the virus expenses it would seem they would fall under the definition of working expenses! Any specific questions about how you can read here the website you can certainly page! Business thats a natural, normal expense is far use: thank you for your business..... Dont answer every question in nitty gritty detail to stay afloat ) we have a cash. 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