So before we dive into specific questions, lets look at how these loans were designed to be used. Could the loan be used to pay say, a year in advance, on a piece of equipment? Im sorry its been so difficult for you. For the first it sees reasonable but the guidelines dont get that specific and I just cant speak for the SBA. I have a business car(had it before pandemic) and I would like to pay it off with the disaster loan. 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 have read about funds not being able to be used for relocation and Im wondering if you have a broader understanding of that term? Find your local help here. Is it acceptable to pay this with the EIDL to give us a little breathing room? 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? 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. I have a question regarding EIDL loan. 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? It seems clear you can't pay yourself unless it's for work you do in your business. Thanks. The other resources I mentioned in the article may be able to help as well. That sounds reasonable to me. Find local help here. Do not rely on this article for specific information on how to properly spend your EIDL funds. If not, you have to figure out the reasonable compensation 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). The guidance I shared in this article came from the Standard Operating Procedures for Disaster Loans which you will find here. Learn more about Disaster Loan eligibility here. 1. Additionally, could funds from the revenue account be invested as they are accounted for independently of all loan proceeds? Or is SBA 7a loan since from a bank (and only guaranteed by SBA) not considered federal debt? I would recommend you reach out directly to the SBA. Please tell me if this is right or wrong.. A friend has a business he wants to sell me. You can also talk with your legal or financial advisors. Can i use eidl to pay for that? If you do, please come back and share with us what they told you. Others seem to think it merely refers to a change in your business address regardless if its in the same county. Do I need to add my backpay onto Form 2202 Statement of Liabilities. You can apply for PPP loans and other SBA loans, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans. Roland the guidance doesnt go into specifics like that. Right now, our business is renting 2 units. I cant speak for the SBA unfortunately. Id recommend you talk to the SBA, your SBDC or a legal or tax professional familiar with this program. Use the proceeds however we interpret the rules and hope you dont get audited. I am the only employee and payroll myself a salary. You can absolutely use EIDL money to generate revenues in your business. Is this allowed. Because I dont work for the SBA I dont feel comfortable commenting on a specific scenario Im sorry! This article offers some suggestions for getting help with your EIDL loan. Im currently not driving because of the pandemic. Thank you for your time to help and answer all of us. Thank you for this very well explained explanation of how the EIDL may or may not be used. You may be able to get help for free from SBA resource partners. He wants to sell me the business for 400K. Please help us keep our site clean and protect yourself. Thank you. they asked. 2) Ive been using the proceed to pay my monthly car loan and phone bill so far that I use for my business. Our interest rate is higher than 3.75%, and isnt amortized for 30 years. Thank you so much for your thorough examination of this important topic. I cant speak for the SBA. My business is from home. I applied for and received an EIDL loan this January and have had a difficult time navigating how to properly use it. Thank you so much in advance for answering. Thank you in advance! In the past, SBA guidelines appeared to prohibit paying off or refinancing long-term debt with EIDL proceeds. Many small business owners arent familiar with the term working capital, though, and as a result they find that description confusing. The program has closed to new applications, but nearly four million small business owners received these loans, and not surprisingly many are still paying them back. Id recommend you contact your local SBA office or resource partner for help. Id suggest you ask the SBA or your tax professional. However, I do not speak for the SBA so Id recommend you contact them or a resource partner. No salary taken, schedule C filed for my self. Overall, the SBA approved about 3.9 million loans . 3) we have a roof that needs to be replaced now on on of our older properties. Hi Gerri .. Try it. Im so confused now. A February 2021 press release from the SBA states. Youll see in the article that the SBA updated guidelines to allow for the prepayment of most debt. You may want to check with the SBA. I am the owner and only employee of the company. Hi Nic Credit cards are considered short term debt so I would imagine paying those would be fine, but I cant speak for the SBA. Luiz We are not the SBA so we cant tell you specifically what you can and cannot do with those funds. Another wrote: I am an Uber driver (independent contractor) and received a $41,000 EIDL loan as an independent contractor. Knowledge is a confidence booster! Verdict: Yes, likely if used for business expenses. Tell me what I need to do. 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. But again I dont speak for the SBA. 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. It is in my name because my business did not have credit when I financed it. 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. You can read the IFR with the expanded use of proceeds here. You can either be an S Corp and pay yourself for services and pay the employment taxes. The best we can do is to try to provide information available from the SBA. Id recommend you call the SBA or talk to your local SBDC or tax pro for further guidance. 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). Ive written about that here. 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. The EIDL guidelines arent specific enough for me to offer advice on individual situations. I mean what if I have an outstanding payment to make can I take 10 000 and but it back without any penalty. 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. Prepayment of principle on business debt is now allowed. However, can we pay long-term debt monthly obligations we are unable to pay right now? Thanks for your insights. (The EIDL grant does not have to be repaid.) Ask Your Own Tax Question Ok. The guidelines for EIDL generally can be found in this document. In your article, your refer to General Accounting Principles (GAP). Thank you. I gotten in my eidil targeted advance loan of the 9K loan proceeds must be used only for eligible payroll costs and certain eligible nonpayroll costs as set forth in program . Can I use this money to pay my internet bill since i need my internet. Thanks for your article and your advice. Here's how: Go to the Transactions menu. The SBA announced September 8, 2021 that it expanded the allowable use of funds to include paying most debts, specifically: SBA is revising the regulation at 13 CFR 123.303, How can my business spend my economic injury disaster loan?, to permit COVID EIDL working capital loan proceeds to be used to pay any type of business debt, including loans owned by a Federal agency (including SBA) or an SBIC. Im a business with a payroll of one and lot of expenses (100% payables w/recievables of less than 10%) (Had alot of volunteers with the business. We have lost income to ourselves as no one is wanting us in their house to clean. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. 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. Can I side the funds to advertise ? This was a very helpful article! In addition, many SBA resource partners such as SBDCs and SCORE are providing assistance with navigating these programs. Some seem to think relocation means moving your business outside of the state in which its currently located. (All of these must be related to work youre doing for the business.) Can you validate this claim? 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. Jeff According to SBA guidelines, refinancing long-term debt is not an acceptable use of EIDL funds. 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 just knew the restrictions of how to use the EIDL loan. We have edited some of these questions for clarity. 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. I like to resume when situation gets little better. 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. Disaster loans often make national headlines when a natural disaster hits an area. 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. Your opinion is greatly appreciated. Mark I tried to tackle that question in #2. Youll see the guidelines starting on page 75. (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, . At the time, I couldnt find any information that indicated if the EIDG/EIDL would effect my unemployment. Kelly I havent found good information on that question either. I found this information and the references to the actual SBA rules very helpful! This article was originally written on July 1, 2020 and updated on February 2, 2023. 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. Many people want to know, can I pay myself withe the EIDL loan? Months later I applied for the loan with no location. Hi Gerri, thanks for such great information. 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. The type of work you do to earn your pay does not appear to be restricted. And since you cant relocate it could be an ever bigger issue. Federal Deposit Insurance Corporation (FDIC) is not considered a Federal agency for this purpose; Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations. 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. She has testified before Congress on consumer credit legislation. 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 ? Greg, As I stated in the article the SBA says: I have a work cargo van that I use for my business. 1. Can I transfer this loan to the new owner. The COVID-19 economic crisis is still creating problems for some businesses. The maximum EIDL loan amount is $2 million, and the deadline to apply for these loans is December 31, 2020. 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. I should add that I am not trying to inspire fear, and I assume the SBA is not either. Unfortunately PPP is now closed. Just as there have been audits and inspections of past disasters, there will be scrutiny of some of these loans as well. I stopped paying myself a salary in August to keep the business going. Spending those funds on a different business could be problematic. Id suggest you talk with the SBA or an SBA resource partner like your SBDC if you have questions about how you can use your EIDL funds. Based on what you are trying to do those expenses could be problematic. Ive been a salaried employee of the business for several years. I believe it happens within approximately ten days. Id consult with them or your tax professional for specific advice. After all, the 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.. 1. HiI am sole proprietor and my business is a fitness training business..to keep my business afloat, with gyms closed and unable to travel or go to client homes, I had to do more online (I was doing some before covid) which meant buying equipment to be able to demonstrate to my clients what I wanted them to do. Im a single member LLC and recently received an EIDL loan. 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. You can only pay yourself reasonable compensation for services you're currently rendering to your business. Can I rent a temporary location? 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. Glad this was helpful! 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. There are some state local organizations making grants. Would we total the charges in that time frame and pay it from the EIDL? I am a sole proprietor, I understand that I can pay business IRS obligations with the EIDL but can I use SBA funds to pay personal IRS taxes that were unpaid during the pandemic due to lack of avail funds at that time? Please answer. I rent spaces now. Just a small cleaning business. (Note: There is an entire section that goes into more detail on paying federal debts. 1. I am planning to pay myself by dividing my net income from Schedule C for 2019/2020 by 12. However, prepayments are not allowedyou can only use EIDL funds on your regularly scheduled payments. It is an essential part of my business which has been hit hard. I need a new motor. Late December I finally followed up and accepted the small loan. 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. I know it says paying fixed debt is an acceptable use. 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. 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? The cost of ordering summer inventory represents an additional need., Ineligible Use of EIDL Funds / What You Cannot Use EIDL On. 1) I received the EIDL loan in December 2020. Can I buy a place with it? The SBA states that SBA COVID-19 EIDL loan funds may be used for: Working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt incurred at any time (past, present, or future).. EIDL loans werent created just for the coronavirus economic crisis. See what I wrote in #2 and #4 of this article. I applied for an EDIL loan and was approved. Can I reimburse for the credit cards used? I did get an EIDL loan for my business, is it still ok to seek other funding like an advanced sales loans through our credit card gateway provider? I am a truck driver (owner operator) and recently applied and was accepted. a reasonable use of these funds. I received an eidl loan and was unclear about so much, while most of this loan has been spent, if only say 90% of this loan was spent correctly and 10% unintentionally spend incorrectly, what are the consequences? I would like to use loan proceeds to pay employees salaries, rent etc. Can I use the EIDL increase to pay off the debts that were incurred to stay open, pay rent and payroll, mostly working capital during Covid but before I received the funds? This article currently has 1191 ratings with an average of 4.5 stars. I got the loan 3 years ago(Total Maturity 7 years). If you dont use an accounting program its a good idea to keep a spreadsheet listing how you spent these funds. Essentially, you can pay down the entire outstanding balance of a commercial loan obtained through traditional lenders with your EIDL funds. If your car payments are normal business expenses it would seem they would fall under the definition of working capital expenses. I dont know what to do. Im sorry if youve already covered this previously but were wondering besides the second round PPP if theres any options or resources for us reapply mabe or request More funds beyond the $150,000k that we received last year. I am a family childcare provider who operates in my home. Our monthly rent went up. 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. Can I payoff my car loan at once instead of paying monthly payments to save on high interest? Right now I dont need a draw. Id recommend you reach out to them. Otherwise, the article is a wonderful summary of EIDL requirements in easy-to-understand language. Have a trucking business and the motor blew in the truck. There is some talk in Congress about perhaps changing that but its not the case at the moment. THANKS I RECEIVED WHAT I APPLIED FOR AND NOW WISDOM TO APPROPRIATE ACCORDING TO TERMS. I know we are not allowed to buy equipment with this loan. So technically, the funds would be used correctly. Can I buy a new t. & The COVID-19 economic crisis is an ongoing crisis and we dont know when it will end. 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