If you’re a small company owner, odds are you’ve been impacted in some way through the COVID-19 pandemic. And when that impact continues to be huge? You’re not at all alone. Small business owners all over the world happen to be hit hard, with many can not keep their businesses afloat. Fortunately, there are a few financial opportunities available to help you with these difficult times. One that you may have already heard of may be the Small Business Administration’s Economic Injury Disaster Loan (EIDL).
The EIDL is really a low-interest, long-term loan for small businesses that have been influenced by COVID. These financing options offer low, fixed rates and repayment terms up to 3 decades. Businesses with fewer than 500 employees, certain nonprofits, and agricultural businesses can apply and become approved if they meet all criteria set by the SBA.
One of the very most common questions we’ve come across is when EIDL funds can be used. The good thing is that there are limited restrictions on the using these financing options. While most of your operational expenses will be covered, though, there are some restrictions. Whether you’re still waiting to try to get your loan or perhaps your funds just hit your bank account, keep reading to explore how you can — and just how you can’t — spend your EIDL funds.
What EIDL Loans Can Be Used For
The great thing about EIDLs is that you will find not many restrictions on how money is spent. Based on the SBA, funds ought to be employed for “financial obligations and operating expenses that may have been met had the disaster not occurred.”
What does this mean? Quite simply, this means that the day-to-day operating expenses can be covered using EIDL funds. EIDL money is meant to assist you to keep the business doors open following a disaster. These financing options help fill the gaps in income the result of a disaster (like the COVID-19 pandemic) and function capital to assist your businesses achieve success regardless of the challenges which come following such a disaster.
Let’s have a more specific look at how your EIDL funds could be spent. Qualifying expenses that can be covered using an EIDL include:
- Working capital
- Rent
- Utilities
- Payroll expenses
- Fixed debt payments
- Health care benefits
- Supplies
- Inventory
- Marketing & advertising
- Accounting & bookkeeping services
- IRS tax payments
You can use funds to pay for yourself only for work that you're doing inside the business — dividends, for instance, have no coverage.
It ought to be noted that there are further restrictions how funds are spent should you also received a Paycheck Protection Program (PPP) loan. We’ll dive deeper in to these restrictions later in this post.
Regardless of methods funds are spent, make sure that you are keeping accurate records. The simplest way to get this done is to apply a company banking account and tracking expenses in accounting software.
Using The loan VS Advance
Many small business owners took benefit of the EIDL Advance, a grant of up to $10,000 that does not have to be paid back. If you received an EIDL Advance, funds may be used in the same manner that EIDL funds may be used — as capital in order to cover operating expenses.
Using EIDL Funds Whenever you In addition have a PPP Loan
Now, what happens for those who have received an EIDL in addition to a Paycheck Protection Program Loan (PPL)? This is where things could possibly get confusing — so allow me to reiterate the significance of tracking how funds are spent.
PPP loans are much more restricted in how they are spent if borrowers want to have their loans fully forgiven. Small business owners that received PPP loans receive loan forgiveness by spending funds on these qualified expenses:
- Payroll expenses
- Rent or lease
- Mortgage interest
- Utilities
Now, so how exactly does this impact the way you spend your EIDL funds? The caveat for borrowers that received both PPP loan and also the EIDL is that funds can not be employed for exactly the same purpose. For instance, should you received both loans and spent your PPP funds on payroll expenses, you can’t also use your EIDL funds of these same expenses on your eight- or 24-week PPP covered period. Exactly the same rule applies if you received the EIDL Advance.
How You Can’t Use Your EIDL
While there are many ways to spend your EIDL funds, there are some restrictions as outlined by the SBA. Let’s check out the straightforward restrictions, take a look at a few which are a bit more complicated. You're restricted by using your EIDL funds for the following purposes:
- Dividends & bonuses
- Acquiring fixed assets
- Expansions
- Refinancing long-term debt
- Repairing or replacing physical damage
- Relocation
- Paying penalties from non-compliance having a government law or regulation
Other restrictions for EIDL money is:
- Disbursements: EIDL funds can’t be employed to pay disbursements to owners, officers, partners, directors, or stockholders. The only real exception happens when disbursements are related to services or performances that are performed for the benefit of the borrower. For example, the owner that pulls an income if jobs are performed inside the business could be paid an income from EIDL funds.
- Stockholder/Principal Loan repayments: The SBA restricts borrowers from repaying stockholder and principal loans. The only real exception is when the funds were disbursed on an interim basis due to the disaster. It must be also shown that the non-payment from the loan would lead to undue hardship on the stockholder or principal.
- Direct Federal Debt: EIDL funds can not be accustomed to repay direct federal debt, including SBA loans.
- Loans Of Federal Agencies: Your EIDL funds can’t be used to make installments, reduce, or pay off any loan of a federal agency. This includes the SBA and any Small Business Investment Company licensed underneath the Small company Investment Act.
FAQS Concerning how to Use An EIDL Loan
Can one use EIDL funds to pay for myself?
If you earn an income for work performed within the business, EIDL funds may be used to pay your salary. However, any disbursements or dividends cannot be paid for you or other people with such funds.
Can I use EIDL to purchase equipment?
The SBA prohibits using EIDL funds to buy fixed assets, and many equipment — like a new company vehicle — come under this umbrella. In a nutshell, most equipment purchases can't be funded using an EIDL loan.
Can I use EIDL funds to repay debt?
It depends. You should use EIDL funds to repay regular fixed costs, such as your business charge cards. The SBA does prohibit you against paying down specific kinds of debt, though. This includes repaying direct federal debt (including SBA loans), as well as paying down or paying off loans owned or issued by federal agencies.
More On COVID Relief For Small Businesses
Looking for other COVID relief options for your online business? has your back! We’ve taken the time to research a variety of choices to assist you to in this difficult financial time. Check out our coronavirus resource center, where you’ll find a lot of everything from emergency business loans to guidance on using business credit. There are a number of resources available to help your business during this critical time, so take time to find out more about these resources. Best of luck and stay safe!
