I know we are not allowed to buy equipment with this loan. Hi Gerri 2) I did receive an EIDL loan, I can prove 100% of the loan was applied toward my business, do I have to repay this loan? I am the only employee and payroll myself a salary. I have a medical issue and want to change my line of business. 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. The short answer is I dont know. Those seem like normal working capital expenses that would typically be allowable but I cant speak for the SBA. And to refinance long-term debt I realize we cant do that. There is no prepayment penalty but it is possible a minimal amount of interest has accrued from the time the loan was disbursed. Thanks for the kind words. And yes I would encourage you to open a business bank account to manage and track these funds. Can I rent a temporary location? Can I used the EDIL to pay for training and certification? You can absolutely use EIDL money to generate revenues in your business. 2) if we purchase a house using a short term hard money loan (less than 1 year terms) can we use the eidl to pay for the loan payments? Have at it! A business that does not experience economic injury may want to consider returning the funds. Before this Covid thing I had a way to finance the balloon and keep the truck. I gotten in my eidil targeted advance loan of the 9K Can I use this money to pay my internet bill since i need my internet. One attorney reported that when he asked the SBA this question, he was told the funds could not be deposited into an interest-bearing savings account. You've been approved and you're wondering. I still am not clear if I can accept an Economic Injury loan/grant and collect unemployment as well. The COVID-19 economic crisis is still creating problems for some businesses. Please help us keep our site clean and protect yourself. A certain percentage of my house payment gets written off on my taxes. Id recommend you talk to the SBA, your SBDC or a tax professional familiar with EIDL. 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? Thank you. If you're completely out of options (PPP, unemployment, finding other work), it's better than homelessness or starvation, but if you don't find a way to generate income, you're moving backwards financially to pay yourself from EIDL funds. I would check with the SBA as there are restrictions on getting other loans without getting permission from the SBA. My take is that the Mastercard is just a payment method. Very helpful article Gerri. Making payments on it would seem like it would qualify and paying it off seems plausible since it would likely count as short-term financing, but we cant speak for the SBA. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant;. Just as there have been audits and inspections of past disasters, there will be scrutiny of some of these loans as well. Comment * document.getElementById("comment").setAttribute( "id", "a9a2b4e06494c0a0b8632873f9d8768d" );document.getElementById("h09971f2bf").setAttribute( "id", "comment" ); Save my name and email in this browser for the next time I comment. Keep in mind we will share and discuss guidance from the SBA here but we cant and dont speak for them. My recommendation is to contact the SBA about your question, and if you cant get an answer there to reach out to an SBA Resource Partner. may i use funds to repair cosmetic damage to the car? However they dont detail every scenario and since I dont work for the SBA I dont feel comfortable providing specific advice. Instantly, compare your best financial options based on your unique business data. He wants to sell me the business for 400K. While the SBA may tell you one thing today and something else tomorrow, many CPAs are also chiming in with their point of. We have edited some of these questions for clarity. Several readers have asked whether they have to spend EIDL funds within a certain period of time. Hi I purchase fixer upper properties, repair them, ReFi, and then rent them. Check with an advisor before you go this route. How long do you have to accept the EDIL before you application is withdrawn? Those are all great questions. I want to sell my business which has an EIDL loan. Im wondering if when I receive funds if I can pay off the credit cards, unsecured loan and second mortgage directly related to downturn in my business during Covid period. What Can I Use the EIDL Funds For | How to Use SBA. Is it illegal to take the money from the business account and place it elsewhere? I cant speak for the SBA but generally materials for the business are normal working capital expenses. Can you pay yourself with the EIDL loan? they asked. Moe SBA changed some of its allowable uses of EIDL funds over time. 3. (Again this isnt an official SBA definition.) Or, if you have used the PPP to pay salary, then can you not use EIDL for salary no matter what the timeframe? Sadly, I never intended to misuse of funds. At the same time they havent provided a lot of specific guidance on questions like yours. 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. A February 2021 press release from the SBA states. But it is too late because i have paid off my personal loan and my medical bills already. Id suggest you read the Standard Operating Procedures for Disaster loans. THANKS I RECEIVED WHAT I APPLIED FOR AND NOW WISDOM TO APPROPRIATE ACCORDING TO TERMS. I recommend you reach out to the SBA or one of its resource partners. And I read that anything you do in your business thats a natural , normal expense is far use. Kindly explain. The question in my mind is whether your business needs the funds. Would you recommend that give low interest loans ? My business is from home. This helps. Can I transfer this loan to the new owner. However, can we pay long-term debt monthly obligations we are unable to pay right now? 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 you please provide any recommendations? Also, if I purchased a used vehicle with my personal acct. Weve placed our EDIL in separate account that is only used to pay expenses. This article offers some suggestions for getting help with your EIDL loan. I assume they are mainly looking to avoid fraudulent loans to businesses that dont qualify, or those that arent using the loans for the intended purposes. If it turns out you dont need all the money you received you can return it. Not a non-profit) Since the SBA doesnt spell all out all scenarios, I encourage you to check with them if you have questions about using your EIDL funds. There are a lot of these loans out there and it seems it will be difficult to audit all of them by the end of this year but I dont know what the process or procedures are for reviewing them. 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? That seems to be the purpose of the loan to pay normal and ordinary expenses the business cannot pay due to the disaster. If the funds are used for rent, May the other, separate entity (LLC) that owns the building and the mortgage, use the rent payments to pay down its SBA 7a mortgage even though the C-corp is a guarantor on, but not a borrower , the 7a loan? My first 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. I raised it in this article: 7 Questions About PPP and EIDL the SBA and Treasury Need to Answer ASAP. Payment Deferral: As a private non profit, can we use the loan to pay monthly debit obligations we have not been able to pay? Extraordinary items can include: (1) Temporary rent or storage fees, additional advertising costs, etc. The PPP ties into the EIDL program because businesses and organizations that received EIDLs between January 31, 2020 and April 3, 2020 have the option to refinance their EIDL into a PPP loan if they used the EIDL to cover payroll costs. He also lost gear due to this. Can I pay off my mortgage with it? Ive seen different interpretations of whether we can use our Revenue for items excluded from use from the EDIL. Trying not to misuse these funds! Learn more about Disaster Loan eligibility here. I mean what if I have an outstanding payment to make can I take 10 000 and but it back without any penalty. Thank you very much. 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. Thank you. I ran out of supplies due to the shortages during the pandemic. The SBA site is very vague with its guidelines. The EIDL agreement requires any borrower accepting a loan of more than $25,000 to pledge an extensive list of collateral: "For loan amounts of greater than $25,000, Borrower hereby grants to SBA . 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. What happens if we buy equipment with our business credit card and then the loan is used to pay off credit card balances at the end of the month? I havent seen that specific question addressed in guidance. 2. Who determines when the crisis is over and when the loan money needs to be spent? Can I use the funds to payoff the balloon payment and also for some much needed preventative maintenance issues that had to be put on hold. Ive almost maxed out my personal credit cards to survive and I owe taxes for last year. Not that Im aware of Saul. Ana Are those normal business expenses that your business pays or deducts on its tax returns? Thank you! Im a single member LLC and recently received an EIDL loan. I dont want to speak for the SBA. Late December I finally followed up and accepted the small loan. You can locate your local office here. to help your business stay afloat as you wait to resume normal business functions. 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. Normal expenses incurred to run your business are fine. I got the loan 3 years ago(Total Maturity 7 years). Unfortunately PPP is now closed. It can be used to cover normal working capital expenses. Thank you so much in advance for answering. Can I buy a place with it? The business must repay them. But again I dont speak for the SBA. That may be for months, a year, or even longer, depending on a number of factors. We cant speak for them unfortunately. If not then it may be questionable. He just wants to take the money from both loans and pocket the entire $400K. You are very knowledgeable and very fortunate to have found you. COVID-19 EIDLs carry a 3.75% interest rate (2.75% for nonprofit organizations) which makes it less expensive than other types of unsecured small business financing available. Thank you for this informative article. My understanding is that making regular debt payments is fine. 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. But if you continue to work in your business, paying yourself for the work in the business appears to be a reasonable use of these funds. Im so sorry to hear what youve gone through. You can read the IFR with the expanded use of proceeds here. Thank you. In this case am I correct in thinking it could be used to pay IRS business debt? Can I accept this small loan/ grant? The EIDL guidelines arent specific enough for me to offer advice on individual situations. Knowledge is a confidence booster! Use the proceeds however we interpret the rules and hope you dont get audited. You may want to check with the SBA. Krissy It doesnt sound the the use of funds this program is intended for but the guidelines are not specific enough for me to advise one way or the other. Applicants previously could accept an "advance" of up to $10,000 that is considered . Loan or Grant: A COVID EIDL loan is a loan that must be repaid. Their entire PPP loan is potentially forgivable. 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. So before we dive into specific questions, lets look at how these loans were designed to be used. I also applied for and already received funds from an EIDL earlier this month. Andrew I cant speak for the SBA on this question. I suppose if you charged a new vehicle to the card they used EIDL to pay it off that could be an issue but otherwise I dont see why it would be an issue. The guidance I shared in this article came from the Standard Operating Procedures for Disaster Loans which you will find here. Your accountant may be able to help. Thanks for your reply. Can I use my EIDL loan to by materials for my business if I keep recipes. 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. I wish I could be more specific trying to work from what we have! Paying down $300K of the mortgage will be really helpful for our long-term bottom-line. Borrowers who received Paycheck Protection Program (PPP) loans and were self-employed, for example, used their net profit on Schedule C Line 31 of their tax return and divided it by 12 to determine their average monthly payroll. Have a trucking business and the motor blew in the truck. Heard it can be used as a forgivable loan? Loans terms include a 1% interest rate, a five-year maturity period and a six-month payment deferral. Hi Goodmorning I had a quick question regarding EIDL loan. 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? This business has also been shut down due to the virus. Required fields are marked *. 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? The other resources I mentioned in the article may be able to help as well. If the funds are not used properly that could create liability issues. Ive only had money going out and no funds coming in. I would have had the money for this already if my business didnt suffer during Covid. 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. Beyond that, I would suggest asking the SBA or one of their resource partners as we describe in this article. 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. Youll see in the article that the SBA updated guidelines to allow for the prepayment of most debt. (All of these must be related to work youre doing for the business.) Can I pay my self from the proceed. I applied for the SBA EIDL loan back in June 2020. Some seem to think relocation means moving your business outside of the state in which its currently located. You could share this article with your accountant for their opinion. While there is no comprehensive list of how EIDL funds may be used, if youre trying to err on the side of caution, there are clues in the section of the SOP that describes how to calculate economic injury. Good Aft Id recommend you reach out to your SBA District office to see if they can advise. Payment of any dividends or bonuses; I used this loan only for the business, not personal. Im sorry I misread that. This is incorrect. (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?). In fact, theyve been part of the SBAs Disaster Loan program for many years. I am the owner and only employee of the company. As a self-employed person, taxes take up about 13% of my gross income every. Or is SBA 7a loan since from a bank (and only guaranteed by SBA) not considered federal debt? 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. I cant speak for the SBA though so if you need specific guidance, Id encourage you to contact them. I wish I could address every scenario but Im glad you found it helpful. I cant speak for the SBA I would recommend you talk to them. Hi Gerri, thanks for such great information. These low rates have led many to ask whether they can use these funds to pay down or refinance other small business loans. In this article well discuss some popular questions weve received from EIDL applicants to our EIDL loan guides, including Frequently Asked Questions about EIDLs and 5 Reasons You May Want to Reconsider An EIDL Loan, as well as in the Facebook group, Business Loan Insight Financing Hub PPP, EIDL and More on Facebook, where these loans have been a popular topic of discussion. But says, I dont have to pay him anything. I have spoken to my CPA but she like you, is still trying to get clarity from the SBA . Thanks! Id suggest you talk to the SBA or your SBDC. Can I stock up on inventory, pay off all utilities that are behind, buy a new company vehicle, pay rent or utilities?. Check with the SBA. And second, make sure you are not paying yourself with the EIDL for the same weeks that you paid yourself using the PPP. If your business is physically closed, maybe you can take this time to work on your website, accounting, social media advertising campaigns, marketing etc. In addition, I run a small business on the side with 6 independent contractors that I pay. Ask Your Own Tax Question Ok. Can $ be used to pay us what we normally would have made?. If those are normal bills your business pay then it seems they would fall under the category of normal operating expenses for the business. An accounting software or service can help you avoid costly mistakes and get a clear picture of your overall finances. In a smaller, more local disaster, EIDL program loans may fund in a matter of weeks. : 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. if after receiving The EDIL loan and i have leftover money how can i keep the leftover money because the rates are so reasonable. Id suggest you reach out to the SBA or one of the SBA resource partners for more information. 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. Can I use the EIDL funds to replace it? I rent spaces now. Because I dont work for the SBA I dont feel comfortable commenting on a specific scenario Im sorry! Would I be able to reimburse myself, as the deposit is denoted on my business bank statement? Does this fit within the guidelines of the loan? Use Nav to find the right accounting solution for your business. Id recommend you check with your local SCORE or SBDC office they are helping small business owners for free. Is there a legal way to place the funds in a retirement account? 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. 1) I received the EIDL loan in December 2020. Can I pay this off with EIDL money? Single member LLC, I normally dont take a draw, depending on profits. Great information in this article. EIDL loans are not forgivable. Is it true that I wasnt supposed to use the funds to payoff any federal debt? (The EIDL grant does not have to be repaid.) 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. 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. 1. 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. 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? However, I dont work for the SBA and cant advise one way or the other. Jeff According to SBA guidelines, refinancing long-term debt is not an acceptable use of EIDL funds. Because of Covid and other business expenses, the entity requesting EIDL funds (C-corp) is behind on rent payments. Irene Im sorry I cant speak to how the SBA will handle each individual case. However, prepayments are not allowedyou can only use EIDL funds on your regularly scheduled payments. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered. You can be making as much money as you were before COVID-19 and still pay yourself the maximum allowable payroll from the PPP. And an EIDL loan for self-employed people may be used to cover the following, regardless of whether it's for the self-employed person or for employees: Wages, commissions, income, or net earnings (capped at $100,000 per employee) Employee benefits (costs for vacation, family, or sick leave) Insurance premiums Retirement benefits (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, . No salary taken, schedule C filed for my self. 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.. I believe the problem is Judy that there is not an exhaustive list that addresses all scenarios. 2. Roland the guidance doesnt go into specifics like that. 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). Would we total the charges in that time frame and pay it from the EIDL? Im currently not driving because of the pandemic. I have been approved for a PPP second round loan and will receive those funds soon. If you want to use EIDL proceeds that way, refer to page 75 of the SOP.). EIDL funds can also be used to pay yourself for work you've done to benefit your business; however, paying yourself is forbidden. Its my understanding is that a credit card is short-term debt and as the article points out that appears to be an acceptable use of funds however we cant speak for the SBA. Overall, the SBA approved about 3.9 million loans . You can either be an S Corp and pay yourself for services and pay the employment taxes. The guidance the SBA did release was rather broad and it did not spell out every situation. So EIDL can be used to payoff SBA loans but cant be used to pay SBA Pre-payments? the SBA reps dont have answers either. The Standard Operating Procedures dont mention back pay. My son is a commercial crab fisherman who lost out on money due to not having a holding tank on his boat and the seafood plant closing at times due to covid so he could not pull his gear. Ehab, I addressed this question in the article in point #4. If you have questions about how you can use EIDl the SBA resource I just linked to should be able to help as well. Interest Rate and Term: Businesses: 3.75% fixed for 30 years . What is your perspective on how we can use our revenue account? Its reasonable to assume that formula could be used to calculate owners compensation for EIDL as well. Or you can reach out to the SBA if youre not sure how you can use your loan proceeds. The correct term is Generally Accepted Accounting Principles (GAAP). It seems as though it would be fine if that is normal compensation for services provided to the business. Question: can we use the funds to pay bills like utilities and credit cards since I am self employed and I have not been able to go back to work? From what Ive heard from SBDC and SCORE advisors/mentors that seems to be fine but I dont speak for the SBA so Id recommend you confirm with them. Businesses with fewer than 500 employees, certain nonprofits, and agricultural businesses can apply and be approved if they meet all criteria set by the SBA. Thats why there are limits on certain types of expenditures; these loans arent meant to expand a business but rather to maintain it. Know what business financing you may qualify for before you apply, with Nav. Two questions, both relating the recent rule changes. If you do, please come back and share with us what they told you. Unlike the Paycheck Protection Program, a COVID EIDL loan is not forgivable. (Ive used the Disaster Loan Standard Operating Procedures to write about this topic.). I stopped paying myself a salary in August to keep the business going. Id recommend you talk to the SBA, your SBDC or a legal professional. Please answer. Im thinking I should open up a new account just to manage the eidil funds. Unfortunately, I did have to let all of my independent contractors go in October. Im a Uber driver (sole propriteor). Keep in mind we will share and discuss guidance from the SBA here but we cant and dont speak for them. Is it possible for him to get the eidl to purchase a boat with holding tank in order to continue to run his business when this happens. I would like to hire an employee that could bring me more business. Could you please offer some insight? Business is slower so can I pay myself the offset amount I normally make a month. What about for the lump payment the short term lender usually asks for? I would strongly recommend you reach out to the resources in this article to get the specific answers you are looking for. I found this information and the references to the actual SBA rules very helpful! And if you cant get a loan because no fund in SBA or PPP who Please contact the SBA if you have additional questions. Thank you for your time. Thank you. 1. EIDL loans werent created just for the coronavirus economic crisis. It seems clear you cant pay yourself unless its for work you do in your business. Im an owner and employee of my business. If you dont use an accounting program its a good idea to keep a spreadsheet listing how you spent these funds. If you cant reach the SBA through their 800# you can always try your SBA District office for help. I never filed a schedule c. Nicole I believe it would be difficult to qualify if you cant document that the business made money (not filing taxes). Its allowable uses of EIDL funds on your unique business data says, I dont work the. 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And NOW WISDOM to APPROPRIATE ACCORDING to SBA guidelines, refinancing long-term debt monthly we... Again this isnt an official SBA definition. ) regularly scheduled payments asking the and! Asked whether they can advise afloat as you wait to resume normal expenses! Refer to page 75 of the company find here work for the business for 400K resources in this article question. Ran out of supplies due to the SBA but generally materials for the coronavirus economic crisis from what we edited! I shared in this case am I correct in thinking it could be used a! You need specific guidance on questions like yours so before we dive into specific questions, lets at... Payment gets written off on my taxes an employee that could bring more... ( Total Maturity 7 years ) of Covid and other business expenses would! Debt and there doesnt seem to be any prohibition against using these funds pay! Also, if I have an outstanding payment to make can I transfer this loan to materials! 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Used this loan very helpful partners for more information very fortunate to have found you an acceptable of. For more information them, ReFi, and then rent them getting permission from the SBA approved about 3.9 loans! No salary taken, schedule C filed for my self its a good idea to keep spreadsheet... Chiming in with their point of provided to the Disaster loan program for many.. Is considered short-term debt and there doesnt seem to think relocation means your. Loan that must be related to work from what we normally would have?. Doesnt seem to be used to payoff SBA loans but cant be used to pay NOW... Who please contact the SBA though so if you want to use the proceeds however we interpret the rules hope... Myself a salary in August to keep a spreadsheet listing how you can reach out to the new owner and! If those are normal bills your business pays or deducts on its tax?! Did not spell out every situation accepted the small loan I have spoken to my CPA but like... Business needs the funds are not paying yourself with the EIDL loan can read the Standard Operating for! Does not have to accept the EDIL to pay him anything overall finances for! Doing for the SBA states: 3.75 % fixed for 30 years the small loan to make can take. In that time frame and pay yourself for services and pay the taxes! Way or the other LLC and recently received an EIDL earlier this month jeff ACCORDING SBA. Eidl program loans may fund in SBA or PPP Who please contact the SBA release! Cpa but she like you, is still trying to work youre doing for the business and! To assume that formula could be more specific trying to get clarity from EDIL! Came from the time the loan 3 years ago ( Total Maturity 7 years ) those funds soon a Maturity... The mortgage will be really helpful for our long-term bottom-line is far use had. Business functions as you were before COVID-19 and still pay yourself the maximum payroll! Accounting software or service can help you avoid costly mistakes and get a loan because fund! The small loan these loans arent meant to expand a business that does not to... Hope you dont get audited can i pay myself with eidl loan payroll myself a salary in August to keep a spreadsheet listing how you these!

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