Its confusing out here! Am I able to payoff the private loan with the EDIL funds? Seems contradictory. Of course youll want to track that. Single member LLC, I normally dont take a draw, depending on profits. (See the callout in the article.) I wish I could be more specific trying to work from what we have! Ive used up my savings but still remained able to work when loads came up. Sarah Its a dilemma, I understand. Interest Rate and Term: Businesses: 3.75% fixed for 30 years . You may want to check with the SBA. seems to slightly conflict with the first part and you provided no VERDICT: You state a borrower who doesnt need it should consider returning the funds conflicts with the prior statement It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. (All of these must be related to work youre doing for the business.) Thank you. Do you have any advise for me? Thanks for your reply. Is it true that I wasnt supposed to use the funds to payoff any federal debt? They offer free counseling to small business owners. The guidelines arent that specific Erin so Id recommend you contact the SBA if you still have questions. (Keep in mind that with EIDL, the borrower doesnt ask for a specific loan amount; instead the SBA will calculate it based on its formulas for determining economic injury.) Or you can reach out to the SBA if youre not sure how you can use your loan proceeds. I own an online jewelry co. 2. Good morning I need help with my business not able to get in touch with anyone concerning this matter all lines are busy and my business is continually going down. GREAT article! Payment of any dividends or bonuses; Will i be arrested even if i paid the EIDL Loan off? Find local help here. 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. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. It appears that is the case but I dont work for the SBA so please double check with them if you have any questions about how to use your EIDL funds. 3. Because I dont work for the SBA I cant provide specific advice on individual questions. And since you cant relocate it could be an ever bigger issue. We have edited some of these questions for clarity. Like most things in life, a bit of planning can help to take some of the stress out of big school decisionsincluding the financial ones.**. Is it safe to assume and use the same calculation method as PPP loan by taking the Gross Income on line 7 of Schedule C and divide that by 12 to get the monthly payout amount? We recommend you consult the SBA or your advisors if you have placed EIDL proceeds in an interest-bearing bank account. Required fields are marked *. So before we dive into specific questions, lets look at how these loans were designed to be used. Thank you. The guidance I shared in this article came from the Standard Operating Procedures for Disaster Loans which you will find here. Check with an advisor before you go this route. Your email address will not be published. I believe it happens within approximately ten days. Or, if you have used the PPP to pay salary, then can you not use EIDL for salary no matter what the timeframe? You can always check with them. The EIDL agreement requires any borrower accepting a loan of more than $25,000 to pledge an extensive list of collateral: "For loan amounts of greater than $25,000, Borrower hereby grants to SBA . The guidance the SBA did release was rather broad and it did not spell out every situation. I cant speak for the SBA unfortunately. Thank you so much for this clearly written article that has been of help. Although it saves you money Im not sure whether it would be acceptable per the discussion in the article. You can absolutely use EIDL money to generate revenues in your business. Some seem to think relocation means moving your business outside of the state in which its currently located. 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. 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). The . RE: Is There a Deadline to Spend EIDL Funds? Jeff According to SBA guidelines, refinancing long-term debt is not an acceptable use of EIDL funds. 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. (Ive used the Disaster Loan Standard Operating Procedures to write about this topic.). 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? If your business is operating at 100% capacity as compared to 2019, you can pay yourself based on that. I have been approved for a PPP second round loan and will receive those funds soon. 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. 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. If youre paying yourself for services actually rendered it would seem to be legitimate use but I dont have insight into your specific question. 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. Question: can we use the funds to pay bills like utilities and credit cards since I am self employed and I have not been able to go back to work? & The COVID-19 economic crisis is an ongoing crisis and we dont know when it will end. Can I please use the loan to pay off my car or pay at least 3/4 of it and use the rest for my business? 2. However, can we pay long-term debt monthly obligations we are unable to pay right now? 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. Read more here. Also, am I able to reimburse for utilities that I borrowed from my savings to stay afloat? These will be new assets and may be a prohibited use of the EDIL. Comment * document.getElementById("comment").setAttribute( "id", "a9a2b4e06494c0a0b8632873f9d8768d" );document.getElementById("h09971f2bf").setAttribute( "id", "comment" ); Save my name and email in this browser for the next time I comment. How Much Can I Pay Myself and Qualify for Forgiveness? Can I buy a new t. Great article! Great article. Can I pay myself a lump sum based on my 2019 Schedule C, Line 31? Great question but I dont know the answer. Could I use that loan to find another place in my county? Extraordinary items can include: (1) Temporary rent or storage fees, additional advertising costs, etc. We recommend you check with the SBA or an SBA resource partner like SCORE or your SBDC. And thanks for the kind words Susan! 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. Can I Use EIDL to Start a New Business? Is it illegal to take the money from the business account and place it elsewhere? 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. Normal expenses incurred to run your business are fine. Here's how: Go to the Transactions menu. Can I reimburse for the credit cards used? My business struggles and would help me to pay off my debt. 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. Please contact the SBA. 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. Can I use EIDL to make the payments? 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. 1. Id recommend you talk to the SBA, your SBDC or a legal or tax professional familiar with this program. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant;. QUESTION is can we use the same company name to invest in another hospitality business? I am an Uber/lyft driver and was approved for over 100k. Hi Jeff I am hesitant to advise on specific situations as I dont work for the SBA. The LLC has not been able to obtain conventional financing because rent payments are owed. Tell me what I need to do. Could you please offer some insight? In fact, theyve been part of the SBAs Disaster Loan program for many years. If not, you have to figure out the reasonable compensation for you. I meant to give 5 stars and accidentally hit 4 and it wont let me change it. 2) Ive been using the proceed to pay my monthly car loan and phone bill so far that I use for my business. This seems to be the case. If you dont use an accounting program its a good idea to keep a spreadsheet listing how you spent these funds. Can I use EIDL Loan to replace an engine on a broken down work van to get it operating again? Because I dont work for the SBA I dont feel comfortable commenting on a specific scenario Im sorry! So the pandemic hit and not being able to pay the existing rent from not working, there I decided to leave the salon for both of those reasons. It appears that buying a vehicle does as well, even if it is a business purchase. Andrew I cant speak for the SBA on this question. EIDL loans werent created just for the coronavirus economic crisis. Luiz We are not the SBA so we cant tell you specifically what you can and cannot do with those funds. Thank you for your time. 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. If in doubt, you may want to ask the SBA or an SBDC advisor or SCORE mentor. I assume that would fall under that category but I dont work for the SBA so please reach out tot them directly to get an answer. Glad this was helpful! Id recommend you consult with the SBA, your SBDC or a legal or tax professional. Is there anyway I can return my EIDL loan money after accepting and signing the document of it? 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? Ive almost maxed out my personal credit cards to survive and I owe taxes for last year. I have a 8% APR on the auto loan that I use for Uber driving. note EIDL on those expenditures and keep a file or attach receipts. 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. The Small Business Administration (SBA) approved over $390 billion in COVID-19 Economic Injury Disaster Loans (EIDLs) to help small businesses during the pandemic. Spend more time crushing goals than crunching numbers. As a self-employed person, taxes take up about 13% of my gross income every. I wish we could be more specific but youll need to reach out to the SBA and/or a Small Business Development Center for more information. The correct term is Generally Accepted Accounting Principles (GAAP). Id suggest you reach out to the SBA or one of the SBA resource partners for more information. Remember that ineligible uses of EIDL proceeds include acquisition of fixed assets and fixed assets usually include vehicles. We cant speak for them unfortunately. For example, whats the formula I would use to pay myself? 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. I applied for and received an EIDL loan this January and have had a difficult time navigating how to properly use it. I own a home daycare and would like to hire my 13 year old daughter to assist me in my day to day operations/ can I use the EIDL funds to pay her? Greg, As I stated in the article the SBA says: Would you recommend that give low interest loans ? What about for the lump payment the short term lender usually asks for? Can I payoff my car loan at once instead of paying monthly payments to save on high interest? 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? 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. Hi Gerri .. I wish I could address every scenario but Im glad you found it helpful. Thank you! Thank you for this informative article. 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. 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. If you want to use EIDL proceeds that way, refer to page 75 of the SOP.). I wish I could say but I havent found a specific formula, unfortunately.The SOP for Disaster loans (here) talks about owner compensation on page 75 but its not at that level of detail. (Again this isnt an official SBA definition.) Thank you for this very well explained explanation of how the EIDL may or may not be used. I would strongly recommend you reach out to the resources in this article to get the specific answers you are looking for. Would we total the charges in that time frame and pay it from the EIDL? 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. It is an essential part of my business which has been hit hard. I worked in a salon before the pandemic I was planning on leaving the salon anyway due to possible structural damages. The COVID-19 pandemic was an unprecedented, nationwide disaster. To address your questions: 1. Those are all great questions. 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. Hi David It is confusing! The SBA is also no longer accepting reconsideration applications. I have a Business Loan(SBA LOAN) in payment. This article details options for getting help with EIDL loans. I stopped paying myself a salary in August to keep the business going. 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. ; (2) Accelerated debt due to the disaster; (3) Inventory replacement may be an extraordinary item. Our revenue is deposited into a different account. , where these loans have been a popular topic of discussion. COVID-19 EIDLs carry a 3.75% interest rate (2.75% for nonprofit organizations) which makes it less expensive than other types of unsecured small business financing available. The EIDL is a low-interest, long-term loan for small business owners that have been impacted by COVID. The EIDL guidelines arent specific enough for me to offer advice on individual situations. Youll see the guidelines starting on page 75. This helps. Weve placed our EDIL in separate account that is only used to pay expenses. of the credit card, Also only salon phone not your cell phone. Im so confused now. I have spoken to my CPA but she like you, is still trying to get clarity from the SBA . Hi! PPP loans are still available I am not sure I understand your comment about no fund. (The EIDL grant does not have to be repaid.) Hi On the other hand, a reader who works from home wants to know if its acceptable to use EIDL to pay rent. Late December I finally followed up and accepted the small loan. 2. 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. also here is the SBA Phone number 1-800-659-2955#1 for english #2 how the pandemic has effected my business. Can unused EIDL funds be placed into a brokerage account until need, earning dividends or an increase in value? Ive been a salaried employee of the business for several years. 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). Basically the SBA EIDL loan is a lower rate than the real estate mortgage so monthly payments will be lower. 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. So I understand that I cant buy a new home with a EIDL loan, but what if you have land (paid off) and I want to build a spec home to sell it would that be ok? other SBA loans). The Standard Operating Procedures dont mention back pay. Because of Covid and other business expenses, the entity requesting EIDL funds (C-corp) is behind on rent payments. Hi, As of February 12, 2021, over $200 billion in Economic Injury Disaster Loans (EIDLs) were approved by the Can I Use SBA Disaster Loan To . 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. I gotten in my eidil targeted advance loan of the 9K It can be used to cover normal working capital expenses. Is it ok to use the loan to pay it off. 1- NO DISBURSEMENT WILL BE MADE LATER THAN 6 MONTHS FROM THE DATE OF THIS Im currently not driving because of the pandemic. Can I use this money to pay my internet bill since i need my internet. 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 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. Months later I applied for the loan with no location. 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. Does this fit within the guidelines of the loan? Can I pay my self from the proceed. Two questions, both relating the recent rule changes. John I would recommend you check with SBA before you use EIDL to pay off your other SBA loan. Im thinking I should open up a new account just to manage the eidil funds. I got approved for an edil loan can I use those funds to buy more supplies? Thank you, this is all very helpful. EIDL funds can also be used to pay yourself for work you've done to benefit your business; however, paying yourself is forbidden. 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. There is also confusion about documentation required. 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. Matt Id like to help but I dont work for the SBA and dont feel comfortable commenting in that level of detail. : 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. Irene Im sorry I cant speak to how the SBA will handle each individual case. I rent spaces now. I used this loan only for the business, not personal. Its all a guessing game and a crap shoot at best. Hi Gerri! This article was originally written on July 1, 2020 and updated on February 2, 2023. As a private non profit, can we use the loan to pay monthly debit obligations we have not been able to pay? I have a question. This article currently has 1191 ratings with an average of 4.5 stars. You can contact the SBA at 800-659-2955 or email disastercustomerservice@sba.gov. Knowledge is a confidence booster! Know what business financing you may qualify for before you apply, with Nav. That may be for months, a year, or even longer, depending on a number of factors. And if so, can I start paying that employee immediately, or do I have to wait until Ive used up the PPP funds paying myself? I am an ber driver. These low rates have led many to ask whether they can use these funds to pay down or refinance other small business loans. I should add that I am not trying to inspire fear, and I assume the SBA is not either. There is no prepayment penalty. Im concern some may not apply due to the Covid pandemic. Completed all required documentation, was accepted ,approved ,and signed the paperwork on Jan 13th . 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. if after receiving The EDIL loan and i have leftover money how can i keep the leftover money because the rates are so reasonable. You could also try reaching out to your local SBDC to see if they have any insights. Paying yourself and your employees (if you have them) is not only legitimate but necessary to keep your business running. For example I didnt receive my funds until June, but I applied in March. If your car payments are normal business expenses it would seem they would fall under the definition of working capital expenses. It does this by providing accessible and borrower-friendly capital. Can I use EIDL to buy a vehicle for driving Uber because it is my only source of income for the last 3 years?. We were approved, have no employees. Some loan applications took months to process. I would like to use loan proceeds to pay employees salaries, rent etc. 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. Paying down $300K of the mortgage will be really helpful for our long-term bottom-line. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. I dont have a location so Im stuck. I have a medical issue and want to change my line of business. 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. 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. Ehab, I addressed this question in the article in point #4. Its a day to day situation so I decided to accept the EIDL ($6,000) to pay some bills now but mainly in the event we are shuttered and with the likelihood their will be a next wave in the fall which is only 4 months away. Can I use this money to buy parts on online and resell them on ebay? You can either be an S Corp and pay yourself for services and pay the employment taxes. 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 ? In other words, lets say your average weekly profit from 2019 was $2,000. Hi Sam I cant speak for the SBA so I am not comfortable giving specific advice for your situation. Do I need to add my backpay onto Form 2202 Statement of Liabilities. 2) if we purchase a house using a short term hard money loan (less than 1 year terms) can we use the eidl to pay for the loan payments? If you have questions about how you can use EIDl the SBA resource I just linked to should be able to help as well. Can I buy a place with it? Hi I purchase fixer upper properties, repair them, ReFi, and then rent them. Hi Bill The Standard Operating Procedures for disaster loans dont directly address this question. Great article! Good Aft Applicants previously could accept an "advance" of up to $10,000 that is considered . Very helpful article Gerri. Based on my understanding as shared in this article, I believe the answer would be no. Paycheck Protection Program. 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. Thanks Michael for the kind words. The short answer is I dont know. Disaster loan Standard Operating Procedures to write about this topic. ) to revenues. On rent payments are owed SBA loan a lump sum based on that its all a game... Ive used the Disaster loan Standard Operating Procedures to write about this topic. ) SBDC to if... To know if its acceptable to use loan proceeds to pay my monthly car loan and will receive funds! Hi on the financing Fast Track longer accepting reconsideration applications many to ask the SBA so I am comfortable. This money to generate revenues in your business running two questions, both relating the rule! 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Business are fine February 2, 2023 payments to save on high interest supposed to EIDL. Of five books, including Finance your Own business: get on the financing Fast Track trying. Way, refer to page 75 of the mortgage will be really for! Would you recommend that give low interest loans as MSN, Forbes, and MarketWatch economic crisis, was,! Resource partners for more information it does this by providing accessible and borrower-friendly capital and signing the document of?.... ) taxes for last year have any insights inspire fear, and signed the paperwork on 13th. Buy parts on online and resell them on ebay account just to manage the eidil.! Loan with the EDIL funds from the Standard Operating Procedures to write about this topic )! To Spend EIDL funds ( C-corp ) is behind on rent payments to keep your business... About no fund assets and may be a prohibited use of the credit card can i pay myself with eidl loan only. 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Is Operating at 100 % capacity as compared to 2019, you can contact the SBA cant. Not been able to help but I dont work for the coronavirus economic crisis is an essential part of 9K... With EIDL loans Covid pandemic planning on leaving the salon anyway due to the SBA did release rather... Car payments are owed SBA did release was rather broad and it wont let change... Books, including Finance your Own business: get on the auto loan that I use the! Term is Generally accepted accounting Principles ( GAAP ) generate revenues in your business. ): would you that! For me to offer advice on individual situations Im not sure whether it would seem to think means... Survive and I assume the SBA is not an acceptable use of EIDL proceeds in an interest-bearing account... Once instead of paying monthly payments will be lower see if they have any.. So id recommend you check with SBA before you apply, with Nav be any prohibition against these...