If you want to use EIDL proceeds that way, refer to page 75 of the SOP.). 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.. It is in my name because my business did not have credit when I financed it. Id suggest checking with your tax professional. Although their work was directly responsible for new revenue, can I still label payments from my company to them as coming from the EIDL money? If I want to return the EIDL funds, can I legally let them sit in a brokerage account for a year before the payments start?, 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 only wish there were some kind of industry specific guidelines we could follow to keep us out of trouble with the SBA. Hi Gerri, thanks for such great information. 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. It seems reasonable that business owners may continue to use those funds for as long as the crisis continues to impact their operations. I dont have a location so Im stuck. I am curious, we use a Mastercard to pay for all of our monthly business expenses which we pay off each month. If you dont use an accounting program its a good idea to keep a spreadsheet listing how you spent these funds. Thank you for your time to help and answer all of us. Appreciate you compiling it all for us. 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. Disaster loans often make national headlines when a natural disaster hits an area, like when Hurricane Ian destroyed part of Florida. Many small business owners arent familiar with the term working capital, though, and as a result they find that description confusing. EIDL loans werent created just for the coronavirus economic crisis. Extraordinary items can include: (1) Temporary rent or storage fees, additional advertising costs, etc. You've got to pay it back. I dont know unfortunately. Id recommend you contact your local SBA office or resource partner for help. What happens if we buy equipment with our business credit card and then the loan is used to pay off credit card balances at the end of the month? But Id check with the SBA or your tax professional about any specific questions. Self-employed individuals can pay themselves with PPP funds, by claiming their owner compensation replacement. I would check with the SBA as there are restrictions on getting other loans without getting permission from the SBA. The EIDL guidelines arent specific enough for me to offer advice on individual situations. I see no reason why you cant use EIDL to pay an employee if that employee is supporting the ongoing operations of the business during the disaster but I cant speak for the SBA. Please tell me if this is right or wrong.. A friend has a business he wants to sell me. If you do, please come back and share with us what they told you. 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. 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? Great question. However, you cannot use your non-PPP loans for the same reason as the PPP loan and still get the forgiveness. I have a question regarding EIDL loan. What is your perspective on how we can use our revenue account? But it is too late because i have paid off my personal loan and my medical bills already. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments, for example. You must have your 10-digit loan number and a payment amount in order to pay it back. My payments are extremely high and I can not go on making that payment. Im a single member LLC and recently received an EIDL loan. (Later the SBA allowed self-employed borrowers to qualify based on gross revenue, instead of net profit.) 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). PPP loans may depending on your lenders policies. If you have questions about how you can use EIDl the SBA resource I just linked to should be able to help as well. Tenants didnt pay during pandemic and now funds needed to repair the units. It does this by providing accessible and borrower-friendly capital. I understand that it cant go to refinance, but can the loan bring down long term debt? Hi Jeff I am hesitant to advise on specific situations as I dont work for the SBA. But I dont speak for the SBA. Can I Put My EIDL Loan In A Savings Account? 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. For the first it sees reasonable but the guidelines dont get that specific and I just cant speak for the SBA. Can we use a portion of the funds to get our own property, and move our operation there? 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. He also lost gear due to this. Id recommend you talk to the SBA, your SBDC or a legal professional. If you cant reach the SBA through their 800# you can always try your SBA District office for help. 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. Prepayment of principle on business debt is now allowed. It doesnt seem like it would be an appropriate use of the funds but I dont want to speculate. 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. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant;. EIDL funds can also be used to pay yourself for work you've done to benefit your business; however, paying yourself is forbidden. ; (2) Accelerated debt due to the disaster; (3) Inventory replacement may be an extraordinary item. We have lost income to ourselves as no one is wanting us in their house to clean. Thank you for this very informational article. As a self-employed person, taxes take up about 13% of my gross income every. Your answer to the question Is There a Deadline to Spend EIDL Funds? Im sorry I misread that. Matt Id like to help but I dont work for the SBA and dont feel comfortable commenting in that level of detail. 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. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments, for example. Do you mean pay off the entire loan? 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? 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. Basically the SBA EIDL loan is a lower rate than the real estate mortgage so monthly payments will be lower. Again we cant speak for the SBA. 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. How Much Can I Pay Myself and Qualify for Forgiveness? If your car payments are normal business expenses it would seem they would fall under the definition of working capital expenses. The fact that you are an independent contractor does not change how you can use EIDL funds. I cant speak for the SBA though so I recommend you check with them. (Note: There is an entire section that goes into more detail on paying federal debts. 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? Thank you in advance! Hi Sam I cant speak for the SBA so I am not comfortable giving specific advice for your situation. Youll see the guidelines starting on page 75. Keep in mind the overall purpose of these loans is to help businesses survive a disaster and to meet the normal operating expenses that they couldnt pay due to the disaster. And if you cant get a loan because no fund in SBA or PPP who Ive posed this question several times to the SBA, the only response I get consists of the terms of use, copied and pasted to a response email. The amount you can pay yourself in payroll is not affected by your actual income for those 8 weeks. I am an uber driver. 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. From what Ive heard from SBDC and SCORE advisors/mentors that seems to be fine but I dont speak for the SBA so Id recommend you confirm with them. 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 . Right now, the EIDL can cover up to six months of working. So EIDL can be used to payoff SBA loans but cant be used to pay SBA Pre-payments? 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? Thats why there are limits on certain types of expenditures; these loans arent meant to expand a business but rather to maintain it. Loan or Grant: A COVID EIDL loan is a loan that must be repaid. Both times I have used all of it for business expenses and IRS federal taxes. Thank you for all your valuable info and keeping this up to date. Can I pay off my mortgage with it? Beyond that, I would suggest asking the SBA or one of their resource partners as we describe in this article. 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. Before this Covid thing I had a way to finance the balloon and keep the truck. 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). I dont see why not it seems like a normal use of working capital. Could I use that loan to find another place in my county? Can $ be used to pay us what we normally would have made?. Great article! Great article! Pay Yourself and Your Employees Paying yourself is of the utmost importance. My business was impacted mildly and have resumed 80%.. i used my PPP for all payroll Can i continue to use my EDIL for payroll, even if i am collecting income Also i have a 50,000 line of credit can i pay this off. The COVID-19 economic crisis is still creating problems for some businesses. We recommend you consult the SBA or your advisors if you have placed EIDL proceeds in an interest-bearing bank account. The SBA states that the EIDL loan may be used to pay past, current or future rent due. These will be new assets and may be a prohibited use of the EDIL. Late December I finally followed up and accepted the small loan. 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 Applicants previously could accept an "advance" of up to $10,000 that is considered . Can I use it to switch business industries and start new business?. 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 ? This article describes how to get help with your questions about EIDL.