Is EIDL right for you?

I have gotten a few questions about the Economic Injury Disaster Loan (EIDL) program, specifically relating to eligible uses of funds. EIDL falls under the SBA 7(a) working capital loan program, meaning that regular business expenses may be paid with these funds. My tax software summarizes it this way:

“EIDL proceeds must be used for working capital necessary to carry a business until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury, including paying fixed debts like a rent or mortgage, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred.”

The research goes on to provide a list of ineligible expenditures as follows:

• refinance indebtedness which you incurred prior to the disaster event,
• make payments on loans owned by another federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act,
• pay, directly or indirectly, any obligations resulting from a federal, state or local tax penalty as a result of negligence or fraud, or any non-tax criminal fine, civil fine, or penalty for non-compliance with a law, regulation, or order of a federal, state, regional, or local agency or similar matter,
• repair physical damage, or
• pay dividends or other disbursements to owners, partners, officers or stockholders, except for reasonable remuneration directly related to their performance of services for the business.

The attractiveness of these loans is undeniable – 3.75% money amortized over 30 years with no personal guarantee if the loan is $200,000 or less. However, incurring debt always comes with risk and some measure of financial inflexibility, so you will want to carefully consider whether you need the money before pulling the trigger. I am glad to discuss if you have any questions.