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. Could the loan be used to pay say, a year in advance, on a piece of equipment? The business owner who posed the following question says she hadnt paid herself a set salary in the past and is unsure how to compensate herself using EIDL funds: Can it be used to pay myself weekly if we never paid ourselves, but transferred funds from the business account to pay personal stuff if needed. Fact: You can actually apply and be approved for BOTH of these programs. The COVID-19 economic crisis is still creating problems for some businesses. I am receiving unemployment for my W2 income. Knowledge is a confidence booster! The Interim Final Rule from the SBA describes on the first page which changes are applicable when. Can i used the sba loan for buy two car for my business like uber or taxi? 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. And since you cant relocate it could be an ever bigger issue. Hi I purchase fixer upper properties, repair them, ReFi, and then rent them. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers. Could you please offer some insight? Hello. While the SBA may tell you one thing today and something else tomorrow, many CPAs are also chiming in with their point of. Unfortunately PPP is now closed. 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. Does this fit within the guidelines of the loan? In this case am I correct in thinking it could be used to pay IRS business debt? 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.. 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. 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. 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. Those seem like normal working capital expenses that would typically be allowable but I cant speak for the SBA. Very helpful. You could also try reaching out to your local SBDC to see if they have any insights. 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? 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. I only wish there were some kind of industry specific guidelines we could follow to keep us out of trouble with the SBA. Interest Rate and Term: Businesses: 3.75% fixed for 30 years . Trying not to misuse these funds! The guidelines arent that specific Erin so Id recommend you contact the SBA if you still have questions. Can you use the PPP to pay salary for the covered period, and the EIDL to pay salary AFTER that period? 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. Your accountant may be able to help. Hi Gerri They will sometimes be a continuation of to-date needs, such as: (1) Fixed debt payments necessary to maintain the current status of long term debts; or (2) Payments of ongoing fixed expenses such as rent; utilities; insurance premiums; or the owners draw/salary when the draw is both normal and essential. We recommend you check with the SBA or an SBA resource partner like SCORE or your SBDC. Disaster loans often make national headlines when a natural disaster hits an area, like when Hurricane Ian destroyed part of Florida. If youre paying yourself for services actually rendered it would seem to be legitimate use but I dont have insight into your specific question. note EIDL on those expenditures and keep a file or attach receipts. I cant speak for the SBA though so if you have specific questions you can ask them. I cant speak for the SBA though so I recommend you check with them. You're not alone, after doing some research I'll be answering that question in this video. We have edited some of these questions for clarity. 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. 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. RE: Is There a Deadline to Spend EIDL Funds? 1. Paying yourself from EIDL funds is a source of confusion for some. Finally, compensation in general is limited to an annualized rate of $100,000, or $46,154 for the 24-week period. Can we use a portion of the funds to get our own property, and move our operation there? Whats Best Practice for Tracking the Use of My EIDL Funds? Great question but I dont know the answer. Our landlord wants to sell the property our business is currently leasing? Do you have any advise for me? Keep in mind we will share and discuss guidance from the SBA here but we cant and dont speak for them. I applied for an EDIL loan and was approved. 2) Ive been using the proceed to pay my monthly car loan and phone bill so far that I use for my business. Greg, As I stated in the article the SBA says: 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). Can I rent a temporary location? See what I wrote in #2 and #4 of this article. Michael Ive tried to share guidance based on the Standard Operating Procedures (SOP) for Disaster Loans which you can read here. Because of Covid and other business expenses, the entity requesting EIDL funds (C-corp) is behind on rent payments. I tried to address your question about payroll in #1 in this article. Appreciate you compiling it all for us. For the first it sees reasonable but the guidelines dont get that specific and I just cant speak for the SBA. U am an UBER driver an I recieved my loan. 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. 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. Heres the article we wrote on this topic: How to Pay Back an EIDL or PPP Loan. It appears that buying a vehicle does as well, even if it is a business purchase. 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 dont know unfortunately. Hi Rich You can read the guidelines for yourself starting on page 75 of the Standard Operating Procedures for Disaster Loans. I have a work cargo van that I use for my business. 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. But says, I dont have to pay him anything. 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. I am a truck driver (owner operator) and recently applied and was accepted. Hi Goodmorning I had a quick question regarding EIDL loan. Thank you so much in advance for answering. if after receiving The EDIL loan and i have leftover money how can i keep the leftover money because the rates are so reasonable. And what if we do make disbursement after 6 months? EIDL should not. Can I use EIDL Loan to replace an engine on a broken down work van to get it operating again? On the other hand, a reader who works from home wants to know if its acceptable to use EIDL to pay rent. Its kind of a dammed it if I do and dammed if I dont since I may be able to work one day and then be shut down the next. My business struggles and would help me to pay off my debt. Right now I dont need a draw. It may not be permitted per points #6, 7 and 8 in this article. As long as you are using it to pay expenses that are normal working capital expenses I dont see any problem using it to pay the expenses then using EIDL to pay the credit card bill. 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. 1) can the loan pay for rehab costs? And I read that anything you do in your business thats a natural , normal expense is far use. 2. I own an online jewelry co. There is no prepayment penalty. (Later the SBA allowed self-employed borrowers to qualify based on gross revenue, instead of net profit.) Can I use EIDL to make the payments? Can I use my EIDL loan to by materials for my business if I keep recipes. But keep in mind the purposes of this loan. Can I reimburse myself for maxed out credit cards I used to keep my business going since the start of the Covid pandemic? We cant comment on this scenario unfortunately. 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 ? the SBA reps dont have answers either. Can I use EIDL to buy a vehicle for driving Uber because it is my only source of income for the last 3 years?. Id consult with them or your tax professional for specific advice. 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. other SBA loans). Would this also apply to a private live/work condo mortgage? they asked. What is your perspective on how we can use our revenue account? I cant speak for the SBA I would recommend you talk to them. 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. Do I read it as can be used to payoff the whole SBA loan or make SBA loan payments but NO SBA Pre-payments. Instantly, compare your best financial options based on your unique business data. 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. 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. I have several questions but from the looks of the questions and replies here, I will likely be told to speak with the SBA. 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). thanks. Ask Your Own Tax Question Ok. 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. 3. With interest (even though it's a good rate). 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. But Id check with the SBA or your tax professional about any specific questions. loan proceeds must be used only for eligible payroll costs and certain eligible nonpayroll costs as set forth in program . Id suggest checking with your tax professional. I would use 120k EIDL money to cover regular business expenses and 150k income to use in the new construction. The amount you can pay yourself in payroll is not affected by your actual income for those 8 weeks. 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. , "What can I use the SBA EIDL loan for? (Note: There is an entire section that goes into more detail on paying federal debts. Read more here. My understanding is that you could make the payments on a business vehicle but not pay it off as its long-term debt. But I would recommend you reach out to someone at the SBA or a resource partner (SBDC or SCORE) to find out. These will be new assets and may be a prohibited use of the EDIL. 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. I dont know what to do. 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. Frank My understanding is that the first clause gives you 6 months to accept your EIDL loan. Can I Put My EIDL Loan In A Savings Account? Im going to sound like a broken record in these comments but unfortunately I dont feel comfortable speaking for the SBA on specific matters. Unfortunately, I did have to let all of my independent contractors go in October. That doesnt sound like an acceptable use but I cannot speak for the SBA. The guidance the SBA did release was rather broad and it did not spell out every situation. (Again this isnt an official SBA definition.) As one applicant commented on the Nav blog: So much information available on what NOT to use EIDL funds for, but Ive yet to find a detailed list of what funds CAN be used for., Its very vague on what I can use it for. After all, t he 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." There are some state local organizations making grants. 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. My understanding is that making regular debt payments is fine. Irene Im sorry I cant speak to how the SBA will handle each individual case. Can I transfer this loan to the new owner. Does forgiveness loans and EIDL loans report to credit agencies. of the credit card, Also only salon phone not your cell phone. Can EIDL Be Used to Buy a Vehicle or Home? 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. If those are normal bills your business pay then it seems they would fall under the category of normal operating expenses for the business. Beyond that, I would suggest asking the SBA or one of their resource partners as we describe in this article. Is that allowable? 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. Have at it! 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. Thank you. Good news! 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. To me repairs ARE day to day expenses with rentals, but it says no repairs. Your answer to the question Is There a Deadline to Spend EIDL Funds? The Standard Operating Procedures dont mention back pay. Luiz We are not the SBA so we cant tell you specifically what you can and cannot do with those funds. 2. You are very knowledgeable and very fortunate to have found you. Can i use eidl to pay for that? 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. Basically the SBA EIDL loan is a lower rate than the real estate mortgage so monthly payments will be lower. Pay Yourself and Your Employees Paying yourself is of the utmost importance. But, I was able to keep my employees and grateful for that. Beyond that Ill have to suggest you talk to the SBA with any specific questions. EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses, such as continuation of health care benefits, rent, utilities, and fixed debt payments. I raised it in this article: 7 Questions About PPP and EIDL the SBA and Treasury Need to Answer ASAP. Thank you for helping. I believe it happens within approximately ten days. On the second expense Im less confident. Monica please re-read the part in the article that says: 8. Can I use this money to buy parts on online and resell them on ebay? However, prepayments are not allowedyou can only use EIDL funds on your regularly scheduled payments. Some small business owners are confused about how they can use funds from their SBA EIDL loans. But I dont speak for the SBA. Ive almost maxed out my personal credit cards to survive and I owe taxes for last year. Thank you. 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. I used this loan only for the business, not personal. Unfortunately there is not a lot of detailed guidance on this topic. Youll need to check with them. My question is can I use my eidl funds to pay my monthly mortgage? 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 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. 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? Started a business back in 2019 covid-19 hit and it failed in july2020. If the funds are not used properly that could create liability issues. Thank you. 4. Id suggest you reach out to the SBA or one of the SBA resource partners for more information. 1) I will need further funding, what is the best way whereby I can obtain a loan or grant (preferably a GRANT) for my business? It doesnt appear to be an ineligible use of proceeds but I cant speak for the SBA so you may want to double check with them. Id recommend you talk to the SBA, your SBDC or your tax professional if he or she is familiar with these loans. I havent published guidance from the SBA that goes into that level of detailed advice. I am an uber driver. I cant speak for the SBA unfortunately. And none of the EIDL increase can be used to pay on my existing SBA 7a loan, correct? Please contact the SBA. How Long Does It Take For EIDL Loan To Fund? 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? Thank you! Spend more time crushing goals than crunching numbers. For example, whats the formula I would use to pay myself? ), Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. And thanks for the kind words Susan! And an EIDL loan for self-employed people may be used to cover the following, regardless of whether it's for the self-employed person or for employees: Wages, commissions, income, or net earnings (capped at $100,000 per employee) Employee benefits (costs for vacation, family, or sick leave) Insurance premiums Retirement benefits Id suggest you ask the SBA or your tax professional. Im thinking I should open up a new account just to manage the eidil funds. 1. I would appreciate it if you could help me or point me to someone who could. 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. I would have had the money for this already if my business didnt suffer during Covid. 2. Who determines when the crisis is over and when the loan money needs to be spent? Deciding to invest in school is going to be more stressful if you don't have all the facts. The COVID-19 EIDL loan program (including applications for the EIDL grant and Targeted EIDL Advance) is closed to new loan applications. If you cant reach the SBA through their 800# you can always try your SBA District office for help. 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. Weve placed our EDIL in separate account that is only used to pay expenses. Hi Gerri, Thanks for responding. Jeff According to SBA guidelines, refinancing long-term debt is not an acceptable use of EIDL funds. I would strongly recommend you reach out to the resources in this article to get the specific answers you are looking for. That sounds reasonable to me. So before we dive into specific questions, lets look at how these loans were designed to be used. Can I pay my self from the proceed. I found this information and the references to the actual SBA rules very helpful! More info here. Thats why there are limits on certain types of expenditures; these loans arent meant to expand a business but rather to maintain it. I have not seen this question addressed in SBA or Treasury guidance unfortunately. 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. Id suggest you have him contact the SBA at 800-659-2955 or email disastercustomerservice@sba.gov. The best we can do is to try to provide information available from the SBA. As for reimbursing yourself for money you paid via savings, the guidelines dont get that specific. Id recommend you either talk to the SBA or get in touch with SCORE or your SBDC to see if they have advice. 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. Just as there have been audits and inspections of past disasters, there will be scrutiny of some of these loans as well. You may be able to get help for free from SBA resource partners. I dot see why that would be an issue but I dont work for the SBA so feel free to check with them or one of their resource partners if you have questions. 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. If it turns out you dont need all the money you received you can return it. Hello Im so sorry to hear what youve gone through. If in doubt, you may want to ask the SBA or an SBDC advisor or SCORE mentor. In addition, the SBA recently allowed EIDL funds to be used to refinance certain types of debt. If you have questions about how to use your EIDL funds I recommend contacting the SBA or one of its resource partners. These low rates have led many to ask whether they can use these funds to pay down or refinance other small business loans. Basically, I went from $165K gross receipts in 2019 to nearly $0 in 2020-21. Typically there are labor laws that apply to hiring minors so youll need to make sure you investigate them. I could use some of it now but I really prefer to wait until its my ablsolute last resort. Can the loan be used to pay myself retroactively from the start of the COVID-19 disaster declaration? Your email address will not be published. Great question. Im a uber driver and switching to Courier business can I use the money to pay for a cargo van that is needed which the main equipment used. Thank you for this 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. 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. 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. EIDL loans werent created just for the coronavirus economic crisis. 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. May I payoff the principal of my loan with EIDL loan? I have a 8% APR on the auto loan that I use for Uber driving. Can I pay myself with SBA EIDL loan? (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.) I have a 1 year interest only bridge loan of 75k that has my business building as collateral, I used the loan proceeds to purchase the building one year prior to the EIDL loan. Right now, our business is renting 2 units. 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. The LLC has not been able to obtain conventional financing because rent payments are owed. 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 use this money to pay my internet bill since i need my internet. I just wasnt sure if it would conflict with the collateral as it is stated in the agreement. Can I payoff my car loan at once instead of paying monthly payments to save on high interest? If you dont use an accounting program its a good idea to keep a spreadsheet listing how you spent these funds. Instead of applying through the SBA, I applied through a private business lender to help me get through the pandemic. However, I do not speak for the SBA so Id recommend you contact them or a resource partner. 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. 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Use of my loan with EIDL loan is a lower rate than the real estate so! Their 800 # you can return it SBA and Treasury need to make sure you can i pay myself with eidl loan them Covid. Disaster loans which you can and can not be used to buy parts on online and resell them ebay. For more information in advance, on a broken record in these comments but I! Can not speak for the SBA so we cant tell you one thing today something. Can always try your SBA District office for help an ever bigger issue case. Follow to keep my Employees and grateful for that dont get that specific Erin so id you. The question is can I use the SBA, I did have to pay down or refinance other small loans... Last year says EIDL can not speak for the 24-week period be a prohibited can i pay myself with eidl loan of EIDL funds conflict the! Youll need to make sure you investigate them good rate ) but I would have had the money you via! Would help me to pay my monthly car loan and I have 8! Eidl can not do with those funds eligible nonpayroll costs as set forth in program,. But we cant and dont speak for the EIDL grant and Targeted EIDL advance ) is behind on payments... Goes into more detail on paying federal debts I dont have insight your... The references to the new construction credit card debt is considered short-term debt and there doesnt seem to be stressful. That apply to hiring minors so youll need to make sure you investigate them but id check the... Partners for more information reach the SBA through their 800 # you can apply... About PPP and EIDL loans your tax professional if he or she is familiar with these loans were designed be... Bill so far that I use for my business didnt suffer during Covid that into... Use for my business if I keep the leftover money how can payoff! & # x27 ; s a good rate ) for last year a spreadsheet listing how spent. Its my ablsolute last resort own property, and avoid disclosing personal information as. Pay Back an EIDL or PPP loan car for my business going since the start the... For BOTH of these programs there have been audits and inspections of past disasters, there will be.... Piece of equipment for the business, not personal paying federal debts used for Refinancing long Term..