However, if your business is economically injured in a different declared natural disaster, such as a wildfire, flood, hurricane or earthquake, you may be eligible for an EIDL loan under the SBA Disaster Loan Program. Can EIDL Be Used to Buy a Vehicle or Home? 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. Payment Deferral: It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. You can absolutely use EIDL money to generate revenues in your business. We are clearly accounting for the EDIL separately and only using those funds for approved items. Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. 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. 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). I cant speak for the SBA though so if you have specific questions you can ask them. I havent seen that specific question addressed in guidance. Would we be able to use EIDL loan funds used to acquire rental property or other forms of real estate? I dont have a definitive answer for you. Can I pay off my mortgage with it? 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? 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.. The Small Business Administration (SBA) approved over $390 billion in COVID-19 Economic Injury Disaster Loans (EIDLs) to help small businesses during the pandemic. Every one of the many questions I had about how and what I can use my EIDL money on was answered in this well written and well laid out article. I am the sole owner of a S Corporation. If you do, please come back and share with us what they told you. Mark I tried to tackle that question in #2. 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. ; ) But Id recommend you check with the SBA to be sure. Its my understanding is that a credit card is short-term debt and as the article points out that appears to be an acceptable use of funds however we cant speak for the SBA. I am the only employee and payroll myself a salary. Can we pay down the mortgage? Do not rely on this article for specific information on how to properly spend your EIDL funds. 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. Although the EIDL loan can't be used to refinance debt or repay federal debt, there's an exception for tax debt. Hi I purchase fixer upper properties, repair them, ReFi, and then rent them. Right now, our business is renting 2 units. The COVID-19 economic crisis is still creating problems for some businesses. My first question: 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 ? 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).. I believe the problem is Judy that there is not an exhaustive list that addresses all scenarios. To me repairs ARE day to day expenses with rentals, but it says no repairs. My business is from home. Verdict: Yes, likely if used for business expenses. 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 CDL truck driver, I work for different companies and am paid by 1099, oilfield went down and I lost a significant amount of income. If yes, can I use the same formula as PPP loan to pay myself by taking the Gross Income on Schedule C Line 7 and divide it by 12 to determine the average monthly payroll? Thank you. Ive been a salaried employee of the business for several years. And how can I document that ? 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. 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. She since has left the marriage and stated that she is the signatory of that loan and could not trust me to pay back the installments, Im more concerned about the legality of the moving of the funds for her sake. 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? The EIDL is a low-interest, long-term loan for small business owners that have been impacted by COVID. 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. The PPP was designed to continue your 2019 payroll for a period . 1. A certain percentage of my house payment gets written off on my taxes. I did reached out to SBA customer service multiple times by phone and email but they were not sure what calculation method should be used to pay myself as a self-employed. (Again this isnt an official SBA definition.) 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 financial statements. Some loan applications took months to process. There is no prepayment penalty. But if you continue to work in your business, paying yourself for the work in the business appears to be a reasonable use of these funds. I have been collecting Pandemic Unemployment Insurance. I like to resume when situation gets little better. This seems to be the case. Jeff According to SBA guidelines, refinancing long-term debt is not an acceptable use of EIDL funds. 2. Who determines when the crisis is over and when the loan money needs to be spent? Ana Are those normal business expenses that your business pays or deducts on its tax returns? 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 other resources I mentioned in the article may be able to help as well. If you dont use an accounting program its a good idea to keep a spreadsheet listing how you spent these funds. Andrew It seems that would be a normal working capital expense that should be covered, and its not on the list of prohibited uses, but we cant speak for the SBA. 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). And none of the EIDL increase can be used to pay on my existing SBA 7a loan, correct? Instead of applying through the SBA, I applied through a private business lender to help me get through the pandemic. & The COVID-19 economic crisis is an ongoing crisis and we dont know when it will end. EIDL loans carry a low interest rate and a 30-year repayment term and can offer a lifeline to struggling small businesses. In fact, theyve been part of the SBAs Disaster Loan program for many years. Several readers have asked whether they have to spend EIDL funds within a certain period of time. Read more here. Similarly I would not invest the funds without checking with the SBA. 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? 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.. note EIDL on those expenditures and keep a file or attach receipts. Hello In a smaller, more local disaster, EIDL program loans may fund in a matter of weeks. Spending those funds on a different business could be problematic. That doesnt sound like an acceptable use but I cannot speak for the SBA. On the other hand, a reader who works from home wants to know if its acceptable to use EIDL to pay rent. When I got my Eidl loan I called SBA and ask them can I buy a car since I am driving for Lyft or Uber ,? Its all a guessing game and a crap shoot at best. Mike I would recommend you get legal advice. This was a very helpful article! If you have questions about your specific situation, we recommend you contact the SBA. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments, for example. I believe it happens within approximately ten days. Can I still take funds specific to dividends / draws? (Note in the article where it says: Extraordinary items are needs outside of normal operations and directly caused by the disaster. Can you help ? Thank you for this very well explained explanation of how the EIDL may or may not be used. 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. So before we dive into specific questions, lets look at how these loans were designed to be used. Instantly, compare your best financial options based on your unique business data. It seems clear you can't pay yourself unless it's for work you do in your business. Tenants didnt pay during pandemic and now funds needed to repair the units. We received questions from entrepreneurs whose businesses were not likely to survive the pandemic downturn and wanted to know if they can use funds from one of these loans to start something new: I am an Uber driver and I got approved for an EIDL loan. Can I use EIDL Loan to replace an engine on a broken down work van to get it operating again? An accounting software or service can help you avoid costly mistakes and get a clear picture of your overall finances. Maria Id encourage you to reach out to your local SBA for guidance. 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. 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. I should add that I am not trying to inspire fear, and I assume the SBA is not either. If the funds are used for rent, May the other, separate entity (LLC) that owns the building and the mortgage, use the rent payments to pay down its SBA 7a mortgage even though the C-corp is a guarantor on, but not a borrower , the 7a loan? I got the loan 3 years ago(Total Maturity 7 years). Would I be able to reimburse myself, as the deposit is denoted on my business bank statement? Hope it helps! Typically there are labor laws that apply to hiring minors so youll need to make sure you investigate them. You can read the IFR with the expanded use of proceeds here. you suggest asking The SBA questions that we arent clear about, unfortunately I have gotten very little clearer answers from them, mostly theyve said yes you can do this and yes you can do that and then my tax person gets nervous.. like paying off a vehicle I already bought, that of course I need for business, she says she doesnt think so.. and I was told clearly yes I can pay back taxes, by the SBA, but my tax person said some of my taxes are personal and some are business..ive had a heckuva time getting any clear answers for many months. I only wish there were some kind of industry specific guidelines we could follow to keep us out of trouble with the SBA. How would I calculate?, Im wondering if there is a limit on how much we can repay ourselves with this loan for lost wages?, It seems clear you cant pay yourself unless its for work you do in your business. It doesnt seem like it would be an appropriate use of the funds but I dont want to speculate. GREAT article! Hello I was wondering if my companys normal business is fix and flip real estate properties , mostly single-family , is that considered proper use of the EIDL funds.. Jeff Id suggest you talk with the SBA or your tax professional. Thank you so much for your thorough examination of this important topic. Michael Ive tried to share guidance based on the Standard Operating Procedures (SOP) for Disaster Loans which you can read here. My Question: Can I hold it as insurance in the event Im closed down suddenly or should I return it and if so how? Thank you for helping. 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. You can certainly reference page 75 of the SOP as a guide. Can I accept this small loan/ grant? The IFR says it can be used to make payments on federal debt but not to prepay federal debt (see the discussion starting on page 11 of that document). Kindly explain. 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. I know I can pay insurance, gas, repair etcwith it but Is it okay to use part of that money to just PAY OFF MY CAR which is over 20k? If my office building is considered collateral and mortgage is $233,000 with payment of $1700 and value of $410,000 why would I pay $2500 a month on $500,000 EIDL and pay $1700 and could I refinance the $233,000 at 12 months and I still have 6 months before my first payment is due. I am planning to pay myself by dividing my net income from Schedule C for 2019/2020 by 12. Just a small cleaning business. Information is collected in accordance with our, Copyright 2022 Nav Technologies, Inc. All Rights Reserved, California loans arranged pursuant to Department of Financial Protection & Innovation Lenders (The EIDL grant does not have to be repaid.) 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. 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. You could share this article with your accountant for their opinion. they asked. Im glad it was helpful. Hi Jeff I am hesitant to advise on specific situations as I dont work for the SBA. 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