We'd love to hear from you and encourage a lively discussion among our users. I have a medical issue and want to change my line of business. Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations. Do you mean pay off the entire 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. Contact your elected officials in DC if you want to see this happen. So before we dive into specific questions, lets look at how these loans were designed to be used. Hi While the SBA may tell you one thing today and something else tomorrow, many CPAs are also chiming in with their point of. Im sorry I misread that. a reasonable use of these funds. Hi Gerri, thanks for such great information. (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, . Kindly explain. Just as there have been audits and inspections of past disasters, there will be scrutiny of some of these loans as well. Hello. I meant to give 5 stars and accidentally hit 4 and it wont let me change it. 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. Is it possible to use SBA EIDL loan to pay off a commercial real estate mortgage? SBA also is revising the regulation toclarify that COVID EIDL loan proceeds 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) or an SBIC. For example I didnt receive my funds until June, but I applied in March. Id suggest checking with your tax professional. 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. Many people want to know, can I pay myself withe the EIDL loan? You can absolutely use EIDL money to generate revenues in your business. If you're using an 8-week covered period, the cap is $15,385. My understanding is that making regular debt payments is fine. I am a truck driver (owner operator) and recently applied and was accepted. Similarly I would not invest the funds without checking with the SBA. 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? (I am not sure what you mean by it is clear we cannot use the EIDL to pay the building center directly I am not sure what type of expenses you are referring to for the building center?). 1) I received the EIDL loan in December 2020. Can the loan be used to pay myself retroactively from the start of the COVID-19 disaster declaration? Id recommend you call the SBA or talk to your local SBDC or tax pro for further guidance. Your accountant may be able to help. With interest (even though it's a good rate). 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. Id recommend you talk to the SBA, your SBDC or a legal professional. We dont work for the SBA so we cannot speak for them. I now know though I was approved for a PPP loan that was utilized 100% to payroll costs, I may use the EIDL for payroll as well. . Thank you for all your valuable info and keeping this up to date. Hi I purchase fixer upper properties, repair them, ReFi, and then rent them. Hope it helps! Paying down (including regular installment payments) or paying off loans provided, or owned by another Federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act. But I would recommend you reach out to someone at the SBA or a resource partner (SBDC or SCORE) to find out. I woukd like to use the loan to continue with a establish a safe place to continue operating my family childcare in my home. Frankly, I dont have an immediate way to spend the funds I received. This article describes how to get help with your questions about EIDL. The EIDL is a low-interest, long-term loan for small business owners that have been impacted by COVID. These will be new assets and may be a prohibited use of the EDIL. You can always check with them. 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. If not then it may be questionable. You can read the IFR with the expanded use of proceeds here. 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 ? Basically, I went from $165K gross receipts in 2019 to nearly $0 in 2020-21. This article was originally written on July 1, 2020 and updated on February 2, 2023. 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? The business must repay them. Kelly I havent found good information on that question either. Try it. Not that Im aware of Saul. This article currently has 1191 ratings with an average of 4.5 stars. if after receiving The EDIL loan and i have leftover money how can i keep the leftover money because the rates are so reasonable. Seems contradictory. Do I need to add my backpay onto Form 2202 Statement of Liabilities. 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. Can I use EIDL Loan to replace an engine on a broken down work van to get it operating again? (See the callout in the article.) Can you validate this claim? Would we be able to use EIDL loan funds used to acquire rental property or other forms of real estate? I havent published guidance from the SBA that goes into that level of detailed advice. The Standard Operating Procedures dont mention back pay. ), Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. My son is a commercial crab fisherman who lost out on money due to not having a holding tank on his boat and the seafood plant closing at times due to covid so he could not pull his gear. loan proceeds must be used only for eligible payroll costs and certain eligible nonpayroll costs as set forth in program . Thanks for your article and your advice. 3. 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. I dont have a location so Im stuck. Thank you for your time. Id recommend you talk to the SBA, your SBDC or a legal or tax professional familiar with this program. And to refinance long-term debt I realize we cant do that. Can I transfer this loan to the new owner. I have 2 barbershops and I want to downsize . Can I use this money to buy parts on online and resell them on ebay? This was a very helpful article! Extraordinary items can include: (1) Temporary rent or storage fees, additional advertising costs, etc. 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. Can I use this money to pay my internet bill since i need my internet. According to new changes on SBA website, It states that proceeds can be used and to pay business debt incurred at any time (past, present, or future). It can be used to cover normal working capital expenses. Great question. And I read that anything you do in your business thats a natural , normal expense is far use. In addition, the SBA recently allowed EIDL funds to be used to refinance certain types of debt. I just knew the restrictions of how to use the EIDL loan. 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. If it turns out you dont need all the money you received you can return it. Good Aft Check with an advisor before you go this route. I got the private loan in Sept 2020 and it has a term of 12 months. EIDL loans werent created just for the coronavirus economic crisis. Self-employed individuals can pay themselves with PPP funds, by claiming their owner compensation replacement. You can certainly reference page 75 of the SOP as a guide. I am a family childcare provider who operates in my home. An accounting software or service can help you avoid costly mistakes and get a clear picture of your overall finances. 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.. I believe the problem is Judy that there is not an exhaustive list that addresses all scenarios. Unfortunately PPP is now closed. Thank you. However, she wont respond to my questions of what she is planning to do with the money. If not, we wont have a business to spend the money on. (Later the SBA allowed self-employed borrowers to qualify based on gross revenue, instead of net profit.) 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. 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. Thank you so much for your insight! 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. 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. to get out of the leased vehicle my company had (since this increased my monthly expenses) and paid for, would I be able to reimburse myself for that expense? You could share this article with your accountant for their opinion. I like to resume when situation gets little better. Can I payoff my car loan at once instead of paying monthly payments to save on high interest? Given how quickly this program was rushed out there were no doubt questions that simply didnt get addressed at the time. Or, if you have used the PPP to pay salary, then can you not use EIDL for salary no matter what the timeframe? I understand you can receive both an EIDL and PPP loan, but cant use them for the same purposes. I want to sell my business which has an EIDL loan. 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 pandemic was an unprecedented, nationwide disaster. If you have specific questions I suggest you reach out to the SBA or an SBA resource partner such as your SBA local office, SBDC or SCORE. I am planning to earmark EIDL funds to pay for work done by independent contractors (1099). You can locate your local office here. The SBAs published guidance did not address this question. I dont see why not it seems like a normal use of working capital. 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. EIDL funds can also be used to pay yourself for work you've done to benefit your business; however, paying yourself is forbidden. Remember, earlier we pointed out that the SOP states: , Economic injury loan proceeds can only be used for working capital necessary to carry the concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury.. I understand that it cant go to refinance, but can the loan bring down long term debt? 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. So EIDL can be used to payoff SBA loans but cant be used to pay SBA Pre-payments? Their entire PPP loan is potentially forgivable. You're not alone, after doing some research I'll be answering that question in this video. If not, you have to figure out the reasonable compensation for you. Ask Your Own Tax Question Ok. Who will notify me? Monica please re-read the part in the article that says: 8. 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