How You Can Use an SBA EIDL Loan

While much attention has been paid to the federal government’s Paycheck Protection Program (PPP) loans, the Small Business Administration’s Economic Injury Disaster Loan (EIDL) program has also been an important source of funding for small businesses during the COVID-19 pandemic. EIDL loans usually only provide assistance after natural disasters like tornadoes, wildfires or floods. But when President Trump declared Covid-19 a nationwide emergency on March 13th, small businesses could apply to the SBA EIDL program for emergency financing.

EIDL loans come with an up-front emergency disbursement of $1,000 per employee (up to $10,000 maximum). This emergency payment is rolled into the loan once it is approved. Terms of an EIDL loan are fairly generous:

  • Loans up to $2 million
  • 30-year terms
  • Interest rates of 3.75% for small businesses and 2.75% for non-profits
  • First payment is not due until 12 months from the date of the promissory note
  • EIDLs smaller than $200,000 can be approved without a personal guarantee
  • For loans under $25,000, the SBA does not take a security interest in any collateral
  • For loans above $25,00 the SBA takes a general security interest in any and all “Collateral” as defined in the promissory note
  • There are no prepayment fees

There are important differences between EIDL loans and PPP Loans in the way you can spend loan funds and how the loans are repaid. The biggest difference is that, if used according to SBA guidelines, PPP loans can be forgiven. These guidelines permit PPP funds to be used for payroll, rent, utilities or mortgage interest. EIDL loans, on the other hand, must be repaid. But they can be used as working capital for a much wider range of day-to-day purposes. Eligible expenses include:

  • Payroll
  • Accounts payable
  • Rent and utilities
  • Inventory
  • Office supplies
  • Accounts payable
  • Merchant fees
  • Bookkeeping and accounting services
  • Some bills that could have been paid had the disaster not occurred

EIDL funds cannot be used for any of the following:

  • Dividends and bonuses
  • Disbursements to owners (draws and distributions), except when directly related to performance of services
  • Repayment of stockholder/principal loans
  • Expansion of facilities or acquisition of fixed assets (e.g. purchasing equipment)
  • Repair or replacement of physical damages
  • Refinancing long term debt (e.g. paying off previous loans or credit card debt)
  • Paying down federal loans (from the SBA or other federal agencies)
  • Relocation

If you have both a PPP loan and EIDL loan, the latter cannot be used on the same expenses that are covered by the PPP within the 8 to 24 week forgiveness period.

For additional information and guidance on PPP or EIDL loans, please contact us at (781) 407-0300.

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