September 10, 2020
Where businesses can (and cannot) use EIDL loan money

The SBA is clear on what EIDL funds can be used for - fixed operational business costs - not expenses connected with things like long-term debt or owner disbursements.

There is a lot of information out there on stimulus funding for businesses in connection with COVID-19.

Today we are going to look at Economic Injury Disaster Loans — EIDLs — and how the money can be used to keep your company up and running.

EIDLs are different than Paycheck Protection Program, or PPP loans. Both are Under the CARES Act stimulus bill and in some ways they are alike.The main differences: PPP loans’ main purpose is to cover payroll; EIDLs arefor operational expenses. Also, EIDLs are not forgivable.

EIDL in a nutshell
EIDLs provide economic relief to small businesses and nonprofits that have had their revenue temporarily impacted by COVID-19. It’s a loan of up to $2 million for six months of operational expenses. The loan amount depends how much you, as the business owner, are approved for.

The Small Business Administration (SBA) determines your company’s need based on information you provide on things like gross revenue and the cost of goods sold over the past year.

Terms & Requirements
The term of an EIDL can be as long as 30 years and the first loan paymentcan be deferred for up to 1 year. The SBA gives businesses a 3.75% interest rate, with 2.75% for nonprofits.

The SBA can provide full details on qualifications for an EIDL, but most small businesses are eligible. They must have been in business since January 31, 2020, have 500 or fewer employees and its owner must not be involved in recent illegal activity or delinquent on other SBA loans.

Collateral is required for loans over $25,000.

All costs not created equal
The SBA requires EIDL funding be used for routine operational costs that would be paid were the pandemic not underway, and revenue were unaffected. Hereare examples of the kinds of fixed costs that EIDL money can be used for:

·       Bookkeeping & accounting services

·       Merchant fees

·       Mortgages

·       Rents

·       Accounts payable

·       Inventory

·       Utilities

·       Web hosting

·       Employee benefits

But the agency is also clear on the kinds of expenses EIDL money may not be used for. They include expenditures that puts a company ahead,going beyond the realm of emergency relief, such as:

·       Facilities expansions

·       Acquisition of fixed assets, such as purchasing of new equipment or technology

·       Disbursements to owners, except when connected with performance of services

·       Refinancing long-term debt

·       Paying down federal loans

·       Relocation

·       Repair or replacing physical damages

Need assistance in deciding which CARE Act loan products will work for your company? (Many businesses combine both.)

Kerby Accounting & Business Solutions is happy to offer no-contact consultations and have a Spanish-speaking team member on staff as well.

Let us know how we can help!

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Kari Kerby

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