By now, most employers are familiar with the Economic Injury Disaster Loan (EIDL) program. This 30-year loan of up to $2 million from the Small Business Administration (SBA) was made available to small business owners who suffered a substantial economic injury due to COVID-19 or were in need of economic disaster relief (note that the EIDL program was not new for COVID-19 and existed prior to the pandemic for as-needed emergency funding). EIDL funds can be used to pay down the balance of commercial loans obtained through traditional lenders or other federal business debts.

However, you can only use EIDL funds on regularly scheduled payments; not prepayments. And both COVID-19 and regular EIDL loans do need to be repaid.

Initial required payments may be coming due.

The SBA has extended the deferment period for payments on existing loans to a total of 30 months from inception on their approved loans.

If you have any questions about making payments, this is a good place to start.

EIDL funds have allowable and unallowable uses.

Loan funds can be used for any normal operating expenses and working capital, including payroll, purchasing equipment, and paying off debt.  And business owners need to have a clearly documented trail of how the EIDL funds were used.

“EIDL proceeds may not be used for:

  1. Payment of any dividends or bonuses;
  2. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to the performance of services for the benefit of the applicant;
  3. Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster and non-repayment would cause undue hardship to the stockholder/principal;
  4. Expansion of facilities or acquisition of fixed assets;
  5. Repair or replacement of physical damages;
  6. Refinancing long term debt (see change described below)
  7. 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. Federal Deposit Insurance Corporation (FDIC) is not considered a Federal agency for this purpose;
  8. Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations. (Note: There is an entire section that goes into more detail on paying federal debts. If you want to use EIDL proceeds that way, refer to page 75 of the SOP.)
  9. Pay any penalty resulting from noncompliance with a law, regulation or order of a Federal, state, regional, or local agency.
  10. Contractor malfeasance; and
  11. Relocation”

EIDL funds should be tracked.

EIDL funds should be put in a separate account once they are received for ease of tracking eligible expenses. At the end of the month, funds can be moved from the EIDL account to the operating expense account for eligible expenses. Documentation should be retained to list expenses covered with EIDL funds.

Keep in mind that if you have received an EIDL loan, you need to file financial statements to the SBA within three months of the end of the fiscal year.

Contact us to review eligible EIDL expenses and help you meet the reporting requirements.

About the Author

Kimberly Brenneman, CPA

Kimberly is an Audit Manager at Wilke & Associates, CPAs. Her background includes preparing individual tax returns, performing audits, and preparing financial statements.