As a sole proprietor, I have received an EIDL loan twice. My understanding is that you could make the payments on a business vehicle but not pay it off as its long-term debt. But I dont speak for the SBA so please check with them about any questions you have about how to use your EIDL funds. We were unable to find an official SBA definition of working capital, but generally, working capital loans are generally used to pay day-to-day expenses of the business. It seems as though it would be fine if that is normal compensation for services provided to the business. Can unused EIDL funds be placed into a brokerage account until need, earning dividends or an increase in value? I have a Business Loan(SBA LOAN) in payment. 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. Thanks for your reply. The Small Business Administration (SBA) approved over $390 billion in COVID-19 Economic Injury Disaster Loans (EIDLs) to help small businesses during the pandemic. Hi David It is confusing! 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." Can I used the EDIL to pay for training and certification? I see no reason why you cant use EIDL to pay an employee if that employee is supporting the ongoing operations of the business during the disaster but I cant speak for the SBA. 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. 3. It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations.. Is it possible to use SBA EIDL loan to pay off a commercial real estate mortgage? I am a construction contractor, and also have my business monthly expenses paid with EIDL money and would use my income as for those materials expenses. See what I wrote in #2 and #4 of this article. My first question: Im hanging on by a thread now. 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. Spend more time crushing goals than crunching numbers. I am an Uber/lyft driver and was approved for over 100k. Jo the SBA has not released specific guidelines to answer your question. If you have questions about using your loan proceeds, we recommend you ask the SBA. License 60DBO-98588, Many business owners, including the sole proprietors and independent contractors who got these loans, have never used a government loan program like this before and are worried about the possible consequences of using their EIDL funds incorrectly. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. And how can I document that ? Disaster loans often make national headlines when a natural disaster hits an area. Paying yourself and your employees (if you have them) is not only legitimate but necessary to keep your business running. My understanding is that you can pay yourself legitimately you can do whatever you want with personal funds. (Ive used the Disaster Loan Standard Operating Procedures to write about this topic.). : 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. Good Aft Overall, the SBA approved about 3.9 million loans . I mean what if I have an outstanding payment to make can I take 10 000 and but it back without any penalty. We received the EIDL can we use some of it to purchase the real estate from him. Ive posed this question several times to the SBA, the only response I get consists of the terms of use, copied and pasted to a response email. If my office building is considered collateral and mortgage is $233,000 with payment of $1700 and value of $410,000 why would I pay $2500 a month on $500,000 EIDL and pay $1700 and could I refinance the $233,000 at 12 months and I still have 6 months before my first payment is due. To address your questions: 1. But again I dont speak for the SBA. (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?). also here is the SBA Phone number 1-800-659-2955#1 for english #2 how the pandemic has effected my business. It seems it would be OK but I cant speak for the SBA so I recommend you reach out to your tax or financial advisors or contact the SBA at 800-659-2955 or email disastercustomerservice@sba.gov. I am a truck driver (owner operator) and recently applied and was accepted. I have applied for an EIDL Loan. a reasonable use of these funds. (Keep in mind you should only use EIDL funds for business purposes, such as paying off business credit cards, and not to pay off personal credit card debt.). 4. Marcus I would recommend you speak to the SBA. That seems to be the purpose of the loan to pay normal and ordinary expenses the business cannot pay due to the disaster. As long as you are using it to pay expenses that are normal working capital expenses I dont see any problem using it to pay the expenses then using EIDL to pay the credit card bill. they asked. If they cant help an SBA resource partner may be able to help. Appreciate you compiling it all for us. We tried to provide helpful information in this article but beyond that we recommend you check with the SBA or your local Small Business Development Center/SCORE. to help your business stay afloat as you wait to resume normal business functions. So, i am going to pay off the SBA loan before the end of the year because the restrictions give me an anxiety. I dont see why not it seems like a normal use of working capital. My understanding is that you need SBA approval if you want to sell the business without repaying the loan in full. For example I didnt receive my funds until June, but I applied in March. Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. It is in my name because my business did not have credit when I financed it. Hi Gerri! Im concern some may not apply due to the Covid pandemic. other SBA loans). 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)., Many small business owners arent familiar with the term working capital, though, and as a result they find that description confusing. Can $ be used to pay us what we normally would have made?. Can i used the sba loan for buy two car for my business like uber or taxi? 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. 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. Just a small cleaning business. If we use the eidl funds to pay ourselves can we then pay for a new used vehicle if we drive for Uber or Lyft? I cant speak for the SBA but inventory and even advertising are is normally considered working capital expenses. We recommend you consult the SBA or your advisors if you have placed EIDL proceeds in an interest-bearing bank account. Hope it helps! We cant speak for them unfortunately. She has testified before Congress on consumer credit legislation. 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). This helps. Andrew It seems that would be a normal working capital expense that should be covered, and its not on the list of prohibited uses, but we cant speak for the SBA. Will i be arrested even if i paid the EIDL Loan off? 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. 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? 17K views 2 years ago #sba #eidl #eidlloan Know how to pay yourself from the SBA EIDL Loan, and how much you can pay yourself from the EIDL Loan. I stopped paying myself a salary in August to keep the business going. Remember, earlier we pointed out that the SOP states: , 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.. Then, assigned Schedule C: Interest for the interest paid. The Standard Operating Procedures dont mention back pay. Can I still take funds specific to dividends / draws? Verdict: Yes, likely if used for business expenses. And what if we do make disbursement after 6 months? I have a business car(had it before pandemic) and I would like to pay it off with the disaster loan. There are some state local organizations making grants. I cant speak for the SBA though so if you need specific guidance, Id encourage you to contact them. Thank you for all your valuable info and keeping this up to date. Im a single member LLC and recently received an EIDL loan. My suggestion Tom is that you check with the SBA. I would appreciate it if you could help me or point me to someone who could. Good morning I need help with my business not able to get in touch with anyone concerning this matter all lines are busy and my business is continually going down. I rent spaces now. These will be new assets and may be a prohibited use of the EDIL. Is these EIDIL loans forgivable during the pandemic? Please notice in the EIDL agreement its states: I also applied for and already received funds from an EIDL earlier this month. EIDL loans werent created just for the coronavirus economic crisis. 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. I could use some of it now but I really prefer to wait until its my ablsolute last resort. Is this allowed. (Note: There is an entire section that goes into more detail on paying federal debts. I havent seen anything in the guidance that addresses this question. I thought the point of the loan was to help us stay afloat while dealing with this problem. Im sorry if youve already covered this previously but were wondering besides the second round PPP if theres any options or resources for us reapply mabe or request More funds beyond the $150,000k that we received last year. Given how quickly this program was rushed out there were no doubt questions that simply didnt get addressed at the time. Rep said you can buy a car as long as promote your Bussines. 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. 2. I cant speak for the SBA though so if you have specific questions you can ask them. Thanks again. I am a family childcare provider who operates in my home. If I want to return the EIDL funds, can I legally let them sit in a brokerage account for a year before the payments start?, Remember, earlier we pointed out that the SOP states: 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.. As long as it goes towards the business ? Great information in this article. may i use funds to repair cosmetic damage to the car? Another business owner asks about paying themselves while their business is closed: We were approved, have no employees. 3) I have an older car with high miles that I drive for Uber, can I trade-in my older car to buy lower mile car to drive for Uber with the EIDL loan proceeds? EIDL loans are not forgivable. Do you think EIDL can be used as a down payment to flip a house by a professional house flipping company. Im a business with a payroll of one and lot of expenses (100% payables w/recievables of less than 10%) (Had alot of volunteers with the business. 3. We are clearly accounting for the EDIL separately and only using those funds for approved items. Some loan applications took months to process. I got the private loan in Sept 2020 and it has a term of 12 months. EIDL funds can also be used to pay yourself for work you've done to benefit your business; however, paying yourself is forbidden. I received an eidl loan and was unclear about so much, while most of this loan has been spent, if only say 90% of this loan was spent correctly and 10% unintentionally spend incorrectly, what are the consequences? 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 have a medical issue and want to change my line of business. You can certainly reference page 75 of the SOP as a guide. Is it true that I wasnt supposed to use the funds to payoff any federal debt? Even though you paid yourself in a lump sum using the PPP, sole proprietor/independent contractor compensation is considered to be 11 weeks of owner pay under the rules of the PPP. If you use accounting software, you can put a note EIDL on those expenditures and keep a file or attach receipts. So my building expenses could be paid with a mixed money EIDL/business monthly income or possibly fully paid with the business monthly income. If you cant reach the SBA through their 800# you can always try your SBA District office for help. & The COVID-19 economic crisis is an ongoing crisis and we dont know when it will end. I would like to hire an employee that could bring me more business. Your second question is in my point #2. Can I accept this small loan/ grant? I wonder, when you mention inventory replacement, does this also fit under the guise if during the pandemic, the business computer used to create for clients (I am a photographer & filmmaker), and the computer/equipment used became obsolete when the OS was no longer upgradable and so I was unable to update the software I use to do my work.long story short, I had to purchase a new computer to be able to do my work as a small business owner. (Note: the SBA opened up EIDL to, Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc, . He also lost gear due to this. Otherwise, the article is a wonderful summary of EIDL requirements in easy-to-understand language. I applied for and received an EIDL loan this January and have had a difficult time navigating how to properly use it. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant;. Glad this was helpful! I cant speak for the SBA but generally materials for the business are normal working capital expenses. 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? I would have had the money for this already if my business didnt suffer during Covid. Thanks. Is there a legal way to place the funds in a retirement account? Monica please re-read the part in the article that says: 8. I spoke with SBA and their advice was to contact a lawyer because they cant give me legal advice and she put a lot of emphasis on no relocating no upgrading. I had an accident that made me not able to walk for three months and cant drive for long hours like I use to do. Great question. Thank you so much for your insight! Thanks! Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations. Many people want to know, can I pay myself withe the EIDL loan? My payments are extremely high and I can not go on making that payment. You may want to check with the SBA. I detailed those resources in this article. These loans offer low, fixed rates and repayment terms up to 30 years. If you really want to understand these loans, you have to look at the history of this program. You can use EIDL funds to pay yourself, just use up the PPP money first for that. Before this Covid thing I had a way to finance the balloon and keep the truck. To me repairs ARE day to day expenses with rentals, but it says no repairs. Others lump it together with the term expanding your business. Pay any penalty resulting from noncompliance with a law, regulation or order of a Federal, state, regional, or local agency. I took out $30k second mortgage loan, a $10k unsecured loan and used my credit cards to survive downturn in my business during Covid. (Again this isnt an official SBA definition.) Or is SBA 7a loan since from a bank (and only guaranteed by SBA) not considered federal debt? I do have UI but when I report even minor earnings my benefit is less than $100 for 2 weeks even with the temporary $600 from the fed so thats useless. I dont know unfortunately. EIDL proceeds may not be used for: We cant comment on this scenario unfortunately. I am an ber driver. Heard it can be used as a forgivable loan? Im glad it was helpful. But thank you for the dry reading. It is a business vehicle not a credit card. Learn how to monitor the status of your COVID-19 EIDL, make payments, and request servicing actions. I understand you can receive both an EIDL and PPP loan, but cant use them for the same purposes. Hi Gerri .. Hi! It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. 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? If you dont use an accounting program its a good idea to keep a spreadsheet listing how you spent these funds. A certain percentage of my house payment gets written off on my taxes. I still am not clear if I can accept an Economic Injury loan/grant and collect unemployment as well. I wish I could be more specific trying to work from what we have! Your email address will not be published. As for reimbursing yourself for money you paid via savings, the guidelines dont get that specific. Can $ be used to pay us what we normally would have made?. The statement is that you can not use the funds to pay federal debt from federal agencies, including SBA, except IRS. Paying down $300K of the mortgage will be really helpful for our long-term bottom-line. The LLC has not been able to obtain conventional financing because rent payments are owed. The website you can use to repay your EIDL loan can be found at Pay.gov. We'd love to hear from you and encourage a lively discussion among our users. 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? Great article. The COVID-19 pandemic was an unprecedented, nationwide disaster. Many business owners, including the sole proprietors and independent contractors who got these loans, have never used a government loan program like this before and are worried about the possible consequences of using their EIDL funds incorrectly. 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. ), Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. If the funds are not used properly that could create liability issues. Thank you for this very informational article. And yes I would encourage you to open a business bank account to manage and track these funds. Thank you. I am a CDL truck driver, I work for different companies and am paid by 1099, oilfield went down and I lost a significant amount of income. I havent seen that specific question addressed in guidance. 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