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. I wish I could address every scenario but Im glad you found it helpful. So my building expenses could be paid with a mixed money EIDL/business monthly income or possibly fully paid with the business monthly income. However they dont detail every scenario and since I dont work for the SBA I dont feel comfortable providing specific advice. Hi Gerri .. There is no prepayment penalty. Can you validate this claim? I tried to address your question about payroll in #1 in this article. Additionally, could funds from the revenue account be invested as they are accounted for independently of all loan proceeds? They include funds necessary to bring delinquencies current and to restore working capital to normal level. You can revoke your S Corp and you'll be a Schedule C. You can distribute money to yourself self you pay self-employment taxes on the 100% of the profit, but you cannot take an EIDL to pay yourself this way. 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. Besides second draw PPP loans the main option is EIDL loans. Mark I tried to tackle that question in #2. EIDL loans are not forgivable. Payment of any dividends or bonuses; Your accountant may be able to help. 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. Contact your elected officials in DC if you want to see this happen. 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. Can $ be used to pay us what we normally would have made?. I would suggest you talk to the SBA. I have a medical issue and want to change my line of business. 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.. Is there anyway I can return my EIDL loan money after accepting and signing the document of it? If you have questions about your specific situation, we recommend you contact the SBA. 1- NO DISBURSEMENT WILL BE MADE LATER THAN 6 MONTHS FROM THE DATE OF THIS Ive written about that here. Ill note that many sole proprietors are paying themselves (usual compensation) with EIDL funds so it may make more sense to just pay that out of your personal funds. , "What can I use the SBA EIDL loan for? I have a question. 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. The type of work you do to earn your pay does not appear to be restricted. I am a truck driver (owner operator) and recently applied and was accepted. With interest (even though it's a good rate). We were approved, have no employees. Compare Your Financing Options With Confidence. Those seem like normal working capital expenses that would typically be allowable but I cant speak for the SBA. Hi, Im a sole proprietor tennis coach who has been directly effected by the pandemic as all courts in my state where closed for months making it impossible to work. And also I have about 18 months before starting to repay it back, if I would decide to invest that money and pay the whole amount back even before the deadline (that 18 months), will that matter to the SBA how I invested it ? Hi Im a gig worker One reader asks whether EIDL can be used to pay shop rent and that seems to be a very reasonable use of working capital funds. 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). Thank you for all of this information. If you received your loan after June 5, 2020, you apply based on the 24-week period. Id consult with them or your tax professional for specific advice. You can also get free assistance by contacting the SBA Disaster hotline, your regional SBA office, your Small Business Development Center (SBDC) and/or SCORE. Once you start paying the loan, the payment for the loan capital will be categorized as Business Loans. 2. I would imagine that may depend on that depends on whether it is a normal business expense but I cant advise specifically one way or the other. Based on the new forgiveness application form 3508EZ if you received your PPP loan on or before June 5, 2020, you may choose an 8-week Covered Period or a 24-week Covered Period. Thank you for this very well explained explanation of how the EIDL may or may not be used. 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. Am I able to payoff the private loan with the EDIL funds? Id recommend you check with your local SCORE or SBDC office they are helping small business owners for free. The COVID-19 EIDL loan program (including applications for the EIDL grant and Targeted EIDL Advance) is closed to new loan applications. Thanks for the information. for customers may be normal working capital expenses. If you are still having trouble understanding how to use these funds in your business, I recommend you contact your local SBA resource partner (SCORE or SBDC for example) for free help. Id suggest you talk to the SBA or your SBDC. 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. Im hanging on by a thread now. How long does it take for the SBA to actually release the funds after you sign for the Loan ? Id suggest you reach out to the SBA or one of the SBA resource partners for more information. Youll see in the article that the SBA updated guidelines to allow for the prepayment of most debt. Extraordinary items are needs outside of normal operations and directly caused by the disaster. 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. So before we dive into specific questions, lets look at how these loans were designed to be used. Thank you for all your valuable info and keeping this up to date. I am an uber driver. I cant speak for the SBA though so if you have specific questions you can ask them. Id recommend you consult with the SBA, your SBDC or a legal or tax professional. I have never had a brick and mortar for my business and would have had the opportunity to sooner if covid didnt happen, so I am viewing the use of this money towards first months rent and security on my first shop space as part of my working capital. Id recommend you reach out to your SBA District office to see if they can advise. (Locate your local office at SBA.gov.) 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? It seems clear you cant pay yourself unless its for work you do in your business. Do I need to add my backpay onto Form 2202 Statement of Liabilities. My payments are extremely high and I can not go on making that payment. The . We use that card to pay off our account at our building center and it is clear we cannot use the EIDL to pay the building center directly, so it seems to be a reasonable assumption that we could not use it to then pay for the Mastercard that paid the building center. I havent seen anything in the guidance that addresses this question. Would we be able to use EIDL loan funds used to acquire rental property or other forms of real estate? What will happen to any left over funds if not all used within that timeframe? Keep in mind we will share and discuss guidance from the SBA here but we cant and dont speak for them. Thank you for this very informational article. Whats Best Practice for Tracking the Use of My EIDL Funds? Youll see the guidelines starting on page 75. I see no reason why you cant use EIDL to pay an employee if that employee is supporting the ongoing operations of the business during the disaster but I cant speak for the SBA. 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. I cant speak for the SBA though so if you have specific questions I recommend you speak to the SBA or a Small Business Development Center (SBDC) advisor or SCORE mentor. 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 we pay down the mortgage? Hi i am rideshare driver and i have my car loan from td bank which i used for rideshare business only can i paid off that loan using sba eidl loan or not ? 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. EIDL loans werent created just for the coronavirus economic crisis. 2. I am the sole owner of a S Corporation. I only wish there were some kind of industry specific guidelines we could follow to keep us out of trouble with the SBA. You must have your 10-digit loan number and a payment amount in order to pay it back. The maximum EIDL loan amount is $2 million, and the deadline to apply for these loans is December 31, 2020. Hi Gerri, thanks for such great information. Hi Use Nav to find the right accounting solution for your business. We received the EIDL can we use some of it to purchase the real estate from him. Others lump it together with the term expanding your business. You may want to check with the SBA if you dont see the deposit soon. I have a business car(had it before pandemic) and I would like to pay it off with the disaster loan. Thank you for helping. Is that allowable? Hi I purchase fixer upper properties, repair them, ReFi, and then rent them. Id recommend you reach out to them. Spend more time crushing goals than crunching numbers. 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. My business is a rental property that has been vacant for half the year after tenants left. They include funds necessary to bring delinquencies current and to restore working capital to normal levels (emphasis added), Future needs are normal obligations, which the business would not be able to meet throughout the remainder of the injury period. (Remember EIDL was not the popular and extensive program it has become when COVID hit so there isnt always guidance that addresses all scenarios.) . Will paying off debt be ok if that debt was incurred during Covid. I received a PPP loan and a EDIL loan. Can we use a portion of the funds to get our own property, and move our operation there? Thank you. Matt Id like to help but I dont work for the SBA and dont feel comfortable commenting in that level of detail. Thanks again. Start By Doing the Research. It is an essential part of my business which has been hit hard. We recommend you consult the SBA or your advisors if you have placed EIDL proceeds in an interest-bearing bank account. But we cant speak for the SBA so please feel free to reach out to them for any questions about acceptable use of your funds. Check with the SBA. It can also be helpful to keep these funds in a separate business bank account for tracking purposes. That may be for months, a year, or even longer, depending on a number of factors. (Note: There is an entire section that goes into more detail on paying federal debts. 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. Right now, our business is renting 2 units. Business is slower so can I pay myself the offset amount I normally make a month. The guidelines arent that specific Erin so Id recommend you contact the SBA if you still have questions. Marcus I would recommend you speak to the SBA. to help your business stay afloat as you wait to resume normal business functions. It seems clear you can't pay yourself unless it's for work you do in your business. Have at it! Thank you for your time to help and answer all of us. Can I buy a new t. Thank you so much in advance for answering. Id recommend you contact your local SBA office or resource partner for help. Can I use EIDL Loan to replace an engine on a broken down work van to get it operating again? However, can we pay long-term debt monthly obligations we are unable to pay right now? 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. Overall, the SBA approved about 3.9 million loans . Thanks. You've got to pay it back. Your opinion is greatly appreciated. Ultimately I dont have an answer to that question as its not something detailed in the guidelines. Can I accept this small loan/ grant? 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. 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. Thank you for a very well written article. Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations. 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. For example, in the spring, a clothing store located in a disaster area is left with an inventory of winter clothing and has no funds to order summer stock. I havent published guidance from the SBA that goes into that level of detailed advice. 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. I believe the problem is Judy that there is not an exhaustive list that addresses all scenarios. EIDL loans are not forgivable. Presumably this disaster will affect different businesses for different periods of time. Id recommend you either talk to the SBA or get in touch with SCORE or your SBDC to see if they have advice. Can I use this to pay my light bill? Although their work was directly responsible for new revenue, can I still label payments from my company to them as coming from the EIDL money? 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