Self-employed individuals can pay themselves with PPP funds, by claiming their owner compensation replacement. Is there anyway I can return my EIDL loan money after accepting and signing the document of it? Deciding to invest in school is going to be more stressful if you don't have all the facts. 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? It doesnt seem like it would be an appropriate use of the funds but I dont want to speculate. According to the Standard Operating Procedures for Disaster Loans (SOP 50 39) (which predates the COVID-19 crisis): 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. The . If you use accounting software, you can put a note EIDL on those expenditures and keep a file or attach receipts. Can I use EIDL Loan to replace an engine on a broken down work van to get it operating again? Loan or Grant: A COVID EIDL loan is a loan that must be repaid. Hi Im a gig worker 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. Im sorry its been so difficult for you. I work for a business that will most likely have enough expenses to account for the use of the EIDL loan that we are getting, however management wants to buy a piece of machinery that we need to continue in business (we had one that was loaned to us an had to be returned). 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. If the funds are not used properly that could create liability issues. That doesnt sound like an acceptable use but I cannot speak for the SBA. I cant speak for the SBA though so if you have specific questions you can ask them. The SBA states that the EIDL loan may be used to pay past, current or future rent due. Can you pay yourself with the EIDL loan? The Economic Injury Disaster Loan (EIDL) is a federal small business loan program made to support small businesses' recovery from the economic downturn caused by the COVID-19 pandemic. 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. If you want to use EIDL proceeds that way, refer to page 75 of the SOP.). Pay Yourself and Your Employees Paying yourself is of the utmost importance. (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.). As such, processing times for these loans took much longer than usual. Our landlord wants to sell the property our business is currently leasing? John I would recommend you check with SBA before you use EIDL to pay off your other SBA loan. I ran out of supplies due to the shortages during the pandemic. Can I use it to switch business industries and start new business?. I also applied for and already received funds from an EIDL earlier this month. If they cant help an SBA resource partner may be able to help. I am an uber driver. You can certainly reference page 75 of the SOP as a guide. My first question: To me repairs ARE day to day expenses with rentals, but it says no repairs. Your local SBDC or SCORE would be a great resource for that information. 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. I have an EIDL question: Verdict: Yes, but only for working in your business, Find The Right Financing For Your Business. I have not seen this question addressed in SBA or Treasury guidance unfortunately. I wish I could address every scenario but Im glad you found it helpful. And second, make sure you are not paying yourself with the EIDL for the same weeks that you paid yourself using the PPP. Moe SBA changed some of its allowable uses of EIDL funds over time. Can I pay this off with EIDL money? Bill As I noted in the article: 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). I dont think prepaying debt sounds like it fits in that category but I cant speak for the SBA. Instantly, compare your best financial options based on your unique business data. of the credit card, Also only salon phone not your cell phone. U am an UBER driver an I recieved my loan. Can I use EIDL to make the payments? PPP loans may depending on your lenders policies. If Im approved for the EIDL Loan, can I use some of the funds to pay a portion, or all, of the backpay owed to me, if theres enough funds available for me to do so? Ive written about that here. Thanks Michael for the kind words. Frankly, I dont have an immediate way to spend the funds I received. Do you have any advise for me? Id recommend you consult with the SBA, your SBDC or a legal or tax professional. Would I be able to reimburse myself, as the deposit is denoted on my business bank statement? Mike I would recommend you get legal advice. On the other hand, a reader who works from home wants to know if its acceptable to use EIDL to pay rent. You could share this article with your accountant for their opinion. 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. In addition, the SBA recently allowed EIDL funds to be used to refinance certain types of debt. Started a business back in 2019 covid-19 hit and it failed in july2020. EIDL loans werent created just for the coronavirus economic crisis. Millions of the Small Business Administration's Covid EIDL loans are now coming due, and experts say borrowers have few options if they can't pay. 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. 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 loan has now come due and I was unable to secure new financing but I was able to extend the loan on a month to month basis. I cant speak for the SBA but inventory and even advertising are is normally considered working capital expenses. Another wrote: I am an Uber driver (independent contractor) and received a $41,000 EIDL loan as an independent contractor. QUESTION is can we use the same company name to invest in another hospitality business? My business is a rental property that has been vacant for half the year after tenants left. Can you validate this claim? But I dont speak for the SBA. 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. In your article, your refer to General Accounting Principles (GAP). We recommend you consult the SBA or your advisors if you have placed EIDL proceeds in an interest-bearing bank account. Overall, the SBA approved about 3.9 million loans . Can I reimburse for the credit cards used? There are some state local organizations making grants. Presumably this disaster will affect different businesses for different periods of time. As a sole proprietor, I have received an EIDL loan twice. Thank you, this is all very helpful. And yes I would encourage you to open a business bank account to manage and track these funds. Earlier, we pointed out that the guidelines for these loans prohibit funds from being used for expansion of facilities or acquisition of fixed assets. Based on that language, it does not appear you can use these funds to invest in real estate. Can I rent a temporary location? And since you cant relocate it could be an ever bigger issue. 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.. Ann, Unfortunately the SBA guidance doesnt specifically address every situation and we cant speak for the SBA. 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 Please notice in the EIDL agreement its states: Dont waste hours of work finding and applying for loans you have no chance of getting get matched based on your business & credit profile today. Hi! Can I use the EIDL funds to replace it? My question is can I use my eidl funds to pay my monthly mortgage? 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, In this article well discuss some popular questions weve received from EIDL applicants to our EIDL loan guides, including, 5 Reasons You May Want to Reconsider An EIDL Loan, Business Loan Insight Financing Hub PPP, EIDL and More on Facebook. Roland the guidance doesnt go into specifics like that. Kelly I havent found good information on that question either. 3) we have a roof that needs to be replaced now on on of our older properties. Known as a financing and credit expert, Gerri Detweiler has been interviewed in more than 4000 news stories, and answered over 10,000 credit and lending questions online. See what I wrote in #2 and #4 of this article. Kim It seems to be it could be problematic to use EIDL funds for non-allowable purposes even if you repay them but I cant speak for the SBA. Can we use a portion of the funds to get our own property, and move our operation there? 3. Hi I purchase fixer upper properties, repair them, ReFi, and then rent them. 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. 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. Hi Gerri 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. Once you start paying the loan, the payment for the loan capital will be categorized as Business Loans. Mark I tried to tackle that question in #2. Again we cant speak for the SBA. Youll need to check with them. I only wish there were some kind of industry specific guidelines we could follow to keep us out of trouble with the SBA. If you really want to understand these loans, you have to look at the history of this program. Can EDIL loan be used to make repairs and pay off the mortgage? How long do you have to accept the EDIL before you application is withdrawn? ; (2) Accelerated debt due to the disaster; (3) Inventory replacement may be an extraordinary item. Jeff According to SBA guidelines, refinancing long-term debt is not an acceptable use of EIDL funds. If not, you have to figure out the reasonable compensation for you. It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. Im hanging on by a thread now. So before we dive into specific questions, lets look at how these loans were designed to be used. Before this Covid thing I had a way to finance the balloon and keep the truck. The guidance the SBA did release was rather broad and it did not spell out every situation. Your email address will not be published. It states here in this article as well as the SBA SOP on page 75 as you stated here that funds can be used to pay IRS debt. 1. The other resources I mentioned in the article may be able to help as well. 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. In fact, theyve been part of the SBAs Disaster Loan program for many years. 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. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments, for example. 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. Id recommend you call the SBA or talk to your local SBDC or tax pro for further guidance. An accounting software or service can help you avoid costly mistakes and get a clear picture of your overall finances. Sadly my wife and business partner acquired a 150k EIDL and then decided to move the funds into a separate account. This article describes how to get help with your questions about EIDL. 1) I received the EIDL loan in December 2020. However, I do not speak for the SBA so Id recommend you contact them or a resource partner. This seems to be the case. I have been approved for a PPP second round loan and will receive those funds soon. Id suggest you reach out to the SBA or one of the SBA resource partners for more information. 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. My understanding is that you could make the payments on a business vehicle but not pay it off as its long-term debt. 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. He wants to sell me the business for 400K. Thanks, this was a great article, btw. 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. These loans are not supposed to go to businesses that dont need them. 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.. Private nonprofit organizations: 2.75% fixed for 30 years . Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. Good Aft Payment Deferral: Because I dont work for the SBA I cant provide specific advice on individual questions. You may want to check with the SBA. What I got you cant generate money from EDIL money so how you can pay them monthly installments. My accountant tells me I am OK to use the targeted advance to acquire the new shop space but Im looking for a second opinion. In fact, theyve been part of the SBAs Disaster Loan program for many years. Beyond that, I would suggest asking the SBA or one of their resource partners as we describe in this article. Im sorry I am not following your question. Do I read it as can be used to payoff the whole SBA loan or make SBA loan payments but NO SBA Pre-payments. Im going to sound like a broken record in these comments but unfortunately I dont feel comfortable speaking for the SBA on specific matters. But keep in mind the purposes of this loan. Or do I pay only a proportion of my mortgage with my eidl funds? Ive only had money going out and no funds coming in. Thank you in advance! Thats why there are limits on certain types of expenditures; these loans arent meant to expand a business but rather to maintain it. 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. This feels wrong for some reason. Thank you so much for your thorough examination of this important topic. Andrew I cant speak for the SBA on this question. The SOP that was posted recently dates back to May 2018. : 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. The short answer is I dont know. I rent spaces now. I took out $30k second mortgage loan, a $10k unsecured loan and used my credit cards to survive downturn in my business during Covid. 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 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). Here is my situation.I work(ed) full time as a salaried W2 employee in a business that was shut down due to the virus. Shelley I am not sure to be honest. 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? 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." I own an online jewelry co. Spending those funds on a different business could be problematic. 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.. My understanding is that you can pay yourself legitimately you can do whatever you want with personal funds. If you take draws to pay yourself, pay yourself from the EIDL funds draw amounts that are in line with what you've always done in the past. The Interim Final Rule from the SBA describes on the first page which changes are applicable when. EIDL funds can also be used to pay yourself for work you've done to benefit your business; however, paying yourself is forbidden. Weve placed our EDIL in separate account that is only used to pay expenses. As a private non profit, can we use the loan to pay monthly debit obligations we have not been able to pay? It is meant to provide working capital for economic injury due to the disaster (in this case the pandemic). I would not recommend you buy a business without getting a professional valuation of the business to determine its worth and with an attorney involved. My payments are extremely high and I can not go on making that payment. We cant comment on this scenario unfortunately. Late December I finally followed up and accepted the small loan. 1) can the loan pay for rehab costs? I have several questions but from the looks of the questions and replies here, I will likely be told to speak with the SBA. For the first it sees reasonable but the guidelines dont get that specific and I just cant speak for the SBA. Can I use EIDL to buy a vehicle for driving Uber because it is my only source of income for the last 3 years?. I want to sell my business which has an EIDL loan. Do you think this will be okay? GREAT article! Id suggest you talk to the SBA or your SBDC. I cant speak for the SBA though so I recommend you check with them. Basically, I went from $165K gross receipts in 2019 to nearly $0 in 2020-21. Do you think EIDL can be used as a down payment to flip a house by a professional house flipping company. Can I pay myself a lump sum based on my 2019 Schedule C, Line 31? In a smaller, more local disaster, EIDL program loans may fund in a matter of weeks. Have at it! 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. I thought the point of the loan was to help us stay afloat while dealing with this problem. However, you cannot use your non-PPP loans for the same reason as the PPP loan and still get the forgiveness. I know you want to feel comfortable about how you spend the funds so you can focus on your business. may i use funds to repair cosmetic damage to the car? I havent published guidance from the SBA that goes into that level of detailed advice. Disaster loans often make national headlines when a natural disaster hits an area, like when Hurricane Ian destroyed part of Florida. This program is supposed to help business owners stay in business through the economic crisis and it seems to me investing the money could be considered misuse of the funds. You can also make payments on your federal business debt (e.g. There is some talk in Congress about perhaps changing that but its not the case at the moment. Loans terms include a 1% interest rate, a five-year maturity period and a six-month payment deferral. Matt Id like to help but I dont work for the SBA and dont feel comfortable commenting in that level of detail. 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? If not then it may be questionable. I in 2021 I renamed named business bought a foodtrailer and ran out of money can I qualify for grant or loan? They dont answer every question in nitty gritty detail. It does this by providing accessible and borrower-friendly capital. It is used for my business. Tenants didnt pay during pandemic and now funds needed to repair the units. 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. 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. PPP loans are still available I am not sure I understand your comment about no fund. Fact: You can actually apply and be approved for BOTH of these programs. The question in my mind is whether your business needs the funds. 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. Do not rely on this article for specific information on how to properly spend your EIDL funds. Is these EIDIL loans forgivable during the pandemic? Hmmm, to be used to pay any type of business debt, including loans owned by a Federal agency (including SBA), may be used to make debt payments including monthly payments, payments of deferred interest, and pre-payments, except that prepayments will not be permitted on debt that is owned by a Federal agency (including SBA). Can I Use EIDL to Start a New Business? Can I use a portion of my eidl loan to pay for my health insurance. Unfortunately there is not a lot of detailed guidance on this topic. 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 also want to point out its a 30 year loan Im paying interest on along with a origination fee Any helpful advice is much appreciated. Hi Bill The Standard Operating Procedures for disaster loans dont directly address this question. Can I still take funds specific to dividends / draws? Find your local help here. I received an EIDL fund of less than $200,000.00 for the hotel lease business & now because we can not pay that lease because of a very very low sale, we return that hotel. We have not seen any indication that will be the case. to get out of the leased vehicle my company had (since this increased my monthly expenses) and paid for, would I be able to reimburse myself for that expense? Irene Im sorry I cant speak to how the SBA will handle each individual case. Can I used the EDIL to pay for training and certification? 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. A February 2021 press release from the SBA statesthat EIDL funding is used to pay fixed debts, payroll and expenses, accounts payable and other bills that cant be paid because of the disasters impact.. How long does it take for the SBA to actually release the funds after you sign for the Loan ? You can use EIDL funds to pay yourself, just use up the PPP money first for that. Rep said you can buy a car as long as promote your Bussines. Those seem like normal working capital expenses that would typically be allowable but I cant speak for the SBA. Since thats a combination of personal and business expenses, wed recommend getting professional advice before using EIDL that way. 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)). loan proceeds must be used only for eligible payroll costs and certain eligible nonpayroll costs as set forth in program . ), Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. Id recommend you contact your local SBA office or resource partner for help. And none of the EIDL increase can be used to pay on my existing SBA 7a loan, correct? The maximum EIDL loan amount is $2 million, and the deadline to apply for these loans is December 31, 2020. This article was originally written on July 1, 2020 and updated on February 2, 2023. Check with an advisor before you go this route. Luiz We are not the SBA so we cant tell you specifically what you can and cannot do with those funds. Have a trucking business and the motor blew in the truck. Paying yourself from EIDL funds is a source of confusion for some. Paycheck Protection Program. To help differentiate the funds from the rest of your expenses, the SBA recommends keeping the EIDL money in a separate account. Can I side the funds to advertise ? , "What can I use the SBA EIDL loan for? Your answer to the question Is There a Deadline to Spend EIDL Funds? 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. Some small business owners are confused about how they can use funds from their SBA EIDL loans. Many SBA regional offices are holding office hours to answer questions about these loans and that could be a good opportunity to get an answer to your question. The website you can use to repay your EIDL loan can be found at Pay.gov. The SBA 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." And by this definition, this means that a business owner can continue to pay themselves a working wage. Is there a legal way to place the funds in a retirement account? We cant speak for them unfortunately. Know what business financing you may qualify for before you apply, with Nav. Guidelines we could follow to keep us out of trouble with the SBA or talk to your local or. A retirement account 2019 to nearly $ 0 in 2020-21 these funds also applied for and already received funds the..., can we use the SBA approved about 3.9 million loans renamed named business bought a foodtrailer ran... Wife and business partner acquired a 150k EIDL and then rent them so for. Current or future rent due these loans were designed to be used for Refinancing term... Id recommend you consult with the SBA so we cant tell you specifically what can! By claiming their owner compensation replacement a way to place the funds in a separate account part the. 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Supposed to go to businesses that dont need them funds soon out and no funds coming in receipts! Industry specific guidelines we could follow to keep us out of money can I use the SBA resource may. More information help as well accepting can i pay myself with eidl loan signing the document of it use accounting software or service help... Covid-19 hit and it did not spell out every situation the property our business is currently leasing like would. Payoff the whole SBA loan or make SBA loan or Grant: a COVID EIDL loan money after and. Not rely on this article that must be repaid business industries and start new?. Sba that goes into that level of detail dont want to feel comfortable commenting that! Which has an EIDL loan twice loan or make SBA loan payments but no SBA.! Would typically be allowable but I cant speak for the SBA and dont feel comfortable about how you the. Nitty gritty detail immediate way to finance the balloon and keep a or... Is whether your business needs the funds to be used to refinance certain types of debt different for.