Maria Id encourage you to reach out to your local SBA for guidance. 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. I would appreciate it if you could help me or point me to someone who could. The amount you can pay yourself in payroll is not affected by your actual income for those 8 weeks. Great question. But keep in mind the purposes of this loan. 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. 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. Essentially, you can pay down the entire outstanding balance of a commercial loan obtained through traditional lenders with your EIDL funds. 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. Thank you for helping. PPP loans may depending on your lenders policies. 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). 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. : 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. 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. I know I can pay insurance, gas, repair etcwith it but Is it okay to use part of that money to just PAY OFF MY CAR which is over 20k? I only wish there were some kind of industry specific guidelines we could follow to keep us out of trouble with the SBA. If I received 31800 can I borrow from that money and later replace it. Just a small cleaning business. hey ms gerri I received the 10000 advance and submitted for supplement 5000 im uber driver full time but as an independent contractor am I eligible for any other government and private loans or grants like PPP,Now what does it mean you cannot use the loan for the same purpose ?what kind of acceptable purpose are we to use when applying for these funds as an independent contractor ? 3. They dont answer every question in nitty gritty detail. If I finance another semi truck can I use the EIDL funds to pay for the down payment, monthly payment, insurance, registration, and/or any maintenance or repairs needed to keep the trucks operating? The statement is that you can not use the funds to pay federal debt from federal agencies, including SBA, except IRS. EIDL funds can also be used to pay yourself for work you've done to benefit your business; however, paying yourself is forbidden. Can $ be used to pay us what we normally would have made?. 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. 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. Overall, the SBA approved about 3.9 million loans . A business that does not experience economic injury may want to consider returning the funds. If yes, can I use the same formula as PPP loan to pay myself by taking the Gross Income on Schedule C Line 7 and divide it by 12 to determine the average monthly payroll? I wish I could be more specific trying to work from what we have! One Uber driver who says they were approved for a $45,000 EIDL wanted to know if its OK to use that money to buy a home. Can I used the EDIL to pay for training and certification? For example I didnt receive my funds until June, but I applied in March. There is some talk in Congress about perhaps changing that but its not the case at the moment. Keep in mind we will share and discuss guidance from the SBA here but we cant and dont speak for them. That changed. The SBAs published guidance did not address this question. 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. The LLC has not been able to obtain conventional financing because rent payments are owed. 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. I just wasnt sure if it would conflict with the collateral as it is stated in the agreement. Thanks again. The question in my mind is whether your business needs the funds. Just as there have been audits and inspections of past disasters, there will be scrutiny of some of these loans as well. On the second expense Im less confident. To me repairs ARE day to day expenses with rentals, but it says no repairs. Im concern some may not apply due to the Covid pandemic. But I dont speak for the SBA. 1) I received the EIDL loan in December 2020. Hi Gerri Ultimately I dont have an answer to that question as its not something detailed in the guidelines. Unlike the Paycheck Protection Program, a COVID EIDL loan is not forgivable. Mike I would recommend you get legal advice. 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. It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. Mark I tried to tackle that question in #2. Try it. I thought the point of the loan was to help us stay afloat while dealing with this problem. It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations.. 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. That sounds reasonable to me. I would strongly recommend you reach out to the resources in this article to get the specific answers you are looking for. Thanks for your reply. Thanks, this was a great article, btw. Ana Are those normal business expenses that your business pays or deducts on its tax returns? Hi Gerri .. Can I use my EIDL loan to by materials for my business if I keep recipes. They offer free counseling to small business owners. Can EDIL loan be used to make repairs and pay off the mortgage? I would like to hire an employee that could bring me more business. I stopped paying myself a salary in August to keep the business going. Normal expenses incurred to run your business are fine. Hi. Before this Covid thing I had a way to finance the balloon and keep the truck. Every one of the many questions I had about how and what I can use my EIDL money on was answered in this well written and well laid out article. Since thats a combination of personal and business expenses, wed recommend getting professional advice before using EIDL that way. This article offers some suggestions for getting help with your EIDL loan. 1) can the loan pay for rehab costs? We cant speak for them unfortunately. Spending those funds on a different business could be problematic. I got approved for an edil loan can I use those funds to buy more supplies? The EIDL is a low-interest, long-term loan for small business owners that have been impacted by COVID. Im sorry its been so difficult for you. (See the callout in the article.) 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? Check with the SBA. Im an owner and employee of my business. PPP loans are still available I am not sure I understand your comment about no fund. There is also confusion about documentation required. We are clearly accounting for the EDIL separately and only using those funds for approved items. Know what business financing you may qualify for before you apply, with Nav. note EIDL on those expenditures and keep a file or attach receipts. This article was originally written on July 1, 2020 and updated on February 2, 2023. Thank you. For example, whats the formula I would use to pay myself? This article describes how to get help with your questions about EIDL. The only long term debt with the office is the SBA loan and all other debt is operating expenses and for some reason if I needed to pay back the SBA loan I would just sell the office building because in a few years it will be worth $500,000 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. The guidance in the Standard Operating Procedures says EIDL cannot be used for Refinancing long term debt. Long term debt is not defined there but the experts I spoke with said long term debt likely refers to debt with a repayment of over one year, using General Accounting Principles (GAP) definitions. Basically the SBA EIDL loan is a lower rate than the real estate mortgage so monthly payments will be lower. You've got to pay it back. Id recommend you talk to the SBA, your SBDC or a legal professional. 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? Im sure others are wondering the same thing. 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. Based on what you are trying to do those expenses could be problematic. I just knew the restrictions of how to use the EIDL loan. 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. 2. 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 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. Similarly I would not invest the funds without checking with the SBA. Or, if you have used the PPP to pay salary, then can you not use EIDL for salary no matter what the timeframe? 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.. Have a trucking business and the motor blew in the truck. 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. Jo the SBA has not released specific guidelines to answer your question. Thanks for your insights. Our landlord wants to sell the property our business is currently leasing? I have not seen this question addressed in SBA or Treasury guidance unfortunately. I recommend you reach out to the SBA or one of its resource partners. The guidance I shared in this article came from the Standard Operating Procedures for Disaster Loans which you will find here. Please answer. Can I transfer this loan to the new owner. Two examples, we have created a new brand and we plan to separate the IP into a new LLC and create a separate marketing company which will lease the IP and feed sales leads to our parent company. Extraordinary items are needs outside of normal operations and directly caused by the disaster. other SBA loans). The . Thank you. Learn how to monitor the status of your COVID-19 EIDL, make payments, and request servicing actions. Since thats a combination of personal and business expenses, wed recommend getting professional advice before using EIDL that way. 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. 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. How Long Does It Take For EIDL Loan To Fund? I understand that debts prior to Covid, which is much smaller amount, cannot be paid off but can only be paid as part of fixed debt payments (already in place before Covid). I did reached out to SBA customer service multiple times by phone and email but they were not sure what calculation method should be used to pay myself as a self-employed. Unfortunately PPP is now closed. 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? Glad this was helpful! I should add that I am not trying to inspire fear, and I assume the SBA is not either. Greg, As I stated in the article the SBA says: Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant; Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster and non-repayment would cause undue hardship to the stockholder/principal; Expansion of facilities or acquisition of fixed assets; Repair or replacement of physical damages; Refinancing long term debt (SBA later made an exception here; see that change described below)). Can I use this money to buy parts on online and resell them on ebay? (Again this isnt an official SBA definition.) In addition, many SBA resource partners such as SBDCs and SCORE are providing assistance with navigating these programs. I need a new motor. At the same time they havent provided a lot of specific guidance on questions like yours. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments, for example. 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. EIDL loans werent created just for the coronavirus economic crisis. 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. If you continued to work in the business during the pandemic, for example, you may want to use what youve paid yourself in the past as a guide. If the funds are not used properly that could create liability issues. Is it illegal to take the money from the business account and place it elsewhere? It is a business vehicle not a credit card. Can you use the PPP to pay salary for the covered period, and the EIDL to pay salary AFTER that period? We were unable to find an official SBA definition of working capital, but generally, are generally used to pay day-to-day expenses of the business. Can I use this money to pay my internet bill since i need my internet. Do you have any advise for me? Completed all required documentation, was accepted ,approved ,and signed the paperwork on Jan 13th . I cant speak for the SBA though so if you need specific guidance, Id encourage you to contact them. Your email address will not be published. Hi David It is confusing! That doesnt sound like an acceptable use but I cannot speak for the SBA. If your business is operating at 100% capacity as compared to 2019, you can pay yourself based on that. There are some ways that you clearly cannot use disaster loan proceeds and these are included under the section that includes ineligible use of proceeds: With that background in mind, lets explore specific questions weve received around the use of EIDL funds. Will i be arrested even if i paid the EIDL Loan off? Extraordinary items can include: (1) Temporary rent or storage fees, additional advertising costs, etc. The COVID-19 EIDL loan program (including applications for the EIDL grant and Targeted EIDL Advance) is closed to new loan applications. And thanks for the kind words Susan! Id recommend you talk with your state unemployment office. My office computer crashed. I received a PPP loan and a EDIL loan. Basically, I went from $165K gross receipts in 2019 to nearly $0 in 2020-21. 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. In your article, your refer to General Accounting Principles (GAP). I have been approved for a PPP second round loan and will receive those funds soon. I am the sole owner of a S Corporation. 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. 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. Thank you so much for this clearly written article that has been of help. Great article! Can I accept this small loan/ grant? 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. You can apply for PPP loans and other SBA loans, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans. I would suggest you talk to the SBA. As such, processing times for these loans took much longer than usual. Here's how: Go to the Transactions menu. Started a business back in 2019 covid-19 hit and it failed in july2020. ), Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. Could the loan be used to pay say, a year in advance, on a piece of equipment? You may be able to get help for free from SBA resource partners. And what if we do make disbursement after 6 months? It may depend on whether your business normally pays for your health insurance. Keep in mind the overall purpose of these loans is to help businesses survive a disaster and to meet the normal operating expenses that they couldnt pay due to the disaster. Great article. 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. Is there a legal way to place the funds in a retirement account? (Note: the SBA opened up EIDL to religious organizations impacted by coronavirus. You've been approved and you're wondering. Is it true that I wasnt supposed to use the funds to payoff any federal debt? It would be a good idea to reach out to them. As a private non profit, can we use the loan to pay monthly debit obligations we have not been able to pay? I contacted SBA and one person said ok to pay off the loan on the business car then another person said it is a grey area. 2. 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. The SBA states that the EIDL loan may be used to pay past, current or future rent due. I havent published guidance from the SBA that goes into that level of detailed advice. Ask Your Own Tax Question Ok. There is no prepayment penalty but it is possible a minimal amount of interest has accrued from the time the loan was disbursed. QUESTION is can we use the same company name to invest in another hospitality business? Ive used up my savings but still remained able to work when loads came up. 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. Im currently not driving because of the pandemic. The type of work you do to earn your pay does not appear to be restricted. 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- Im a sole owner company (Engineering Consultation) Lets call it Business A, I partnered with another person (same business/industry) Company b can i use the money i got from SBA EIDL under business A to to pay salaries for Business b or it that consider expanding business? I applied for and received an EIDL loan this January and have had a difficult time navigating how to properly use it. I cant speak for the SBA though so if you have specific questions you can ask them. Questions well tackle here include whether you can use EIDL to: Well also discuss how long you have to use the loan proceeds, what documentation you must keep and what to do if you want to return it. Those are all great questions. Employee that could create liability issues I paid the EIDL loan is a business that does not experience injury... 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