What can you spend EIDL funds on?

Not until recently did many business owners become familiar with the Economic Injury Disaster Loan (EIDL) program. The Covid 19 pandemic accounts for close to $2 million disbursed to small businesses. Long before the pandemic, the SBA has been running Economic Injury Disaster Loan (EIDL) program to the benefit of small businesses.

What is EIDL and who is eligible?

Usually, small businesses unable to secure loans apply for the EIDL, or sometimes, apply for both EIDL and PPP loans. Before the pandemic, businesses with setbacks from natural disasters apply for the loan at a low interest. It's a long-term loan payable over 30 years with interest not exceeding 4%. With the loan, if you are approved, you can cater to operating costs that would have been met if not for the disaster.

To obtain an EIDL over $25,000, collateral becomes necessary, and a guarantor for loans over $200,000. The repayment can be deferred for a year, but the loan is not forgivable. 

To apply, there are a few requirements. If you run any of these businesses, then you are ineligible:

•    Illegal enterprise, 
•    Loan packaging 
•    Investment
•    Lending 
•    Gambling

If your business doesn't fall into these categories, then you can apply by visiting the SBA page, then following the prompts. After applying, you'll get a loan quote, your application will undergo a review, and the loan decision suffices.

If approved, the loan is disbursed with 5-10 business days. If declined, request for reconsideration within 6 months of the date of the declined application. There are various reasons why a loan can be declined. 

•    Failure to provide additional information as requested
•    Criminal record of applicants 
•    Ineligible business 
•    Ineligible noncitizen applicant
•    Poor credit history
•    Problem verifying submitted information

After the loan approval, business owners need clarification on what they can spend on the funds. So, what can you spend the EIDL funds on? 

What You Are Allowed to Use EIDL Funds For

EIDL funds serve as capital or operating funds for a business. It's usable as a continuation of rent payment, utilities, fixed debts. In short, the usual operating business cost will be addressed using the funds. And this includes repairs, healthcare for employees, replacement of inventory, and some other monthly expenses. 

However, as flexible as the use of the EIDL may be, there are restrictions. And these restrictions are best observed. It may be wise to even have a separate account for the funds. In this way, you won't spend it mistakenly, especially on restricted things. Additionally, if the need to provide the details of transactions is required, the expenses record is easy to retrieve.  

EIDL Spend Restrictions

First, if you obtained both EIDL and PPP loans, both cannot be used for the same purpose. Only when the PPP loan is exhausted can the EIDL come into play. 

The EIDL should not be used for: 

•    Total repayment of existing loans 
•    Purchase of capital assets 
•    New construction or expansion 
•    Payment of dividends 
•    Payment of principal loans 
•    Payment to owners unless for rendered service 

Overall, for clarification on specifics, it's best to seek the assistance of the SBA or an accounting professional.

Need help managing your EIDL funds?

If your business is suffering hardship brought on by the Coronavirus, we can help connect you with a local accountant to help you navigate the relief efforts available to you.

Self-Employed Persons and EIDL

Self-employed individuals are caught in between EIDL loan applications or looking for alternatives. Better enough, SBA allows self-employed and independent contractors access to the loan. As a self-employed individual, you can spend the loan on: 

•    Employee benefits (max of $100,000) 
•    Insurance 
•    Taxes 
•    Wages / commission 
•    Retirement benefits 

EIDL Repayment

As you take advantage of the EDIL funds to support your business, repayment is crucial to keep and build a good credit score. Initially, your credit score may drop a few points at the time of loan collection. However, you'll recover from this temporary drawback in the long run as you promptly make repayments.