What you cannot (should not) use EIDL Loan for?

So you got approved for an EIDL loan, should’ve made things easy but you may now be wondering “I didn’t really need this money should I invest it?” “use it to pay off another high interest loan” “you also got approved for PPP and you’d rather use those funds for business.”

Now in regards to PPP loan the most important thing is that it is forgivable and EIDL is not. It is suggested that you use the PPP loan for the following proceeds:

  • payroll
  • business mortgage interest
  • business rent or lease payments and
  • business utility payments

EIDL loan funds however can be used for a much wider range of business working capital. so the agreement states that:

Borrower will use all the proceeds of this Loan solely as working capital

So what is working capital? According to Investopedia :

  • Working capital is the money used to cover all of a company’s short-term expenses, which are due within one year.
  • Working capital is the difference between a company’s current assets and current liabilities.
  • Working capital is used to purchase inventory, pay short-term debt, and day-to-day operating expenses.
  • Working capital is critical since it’s needed to keep a business operating smoothly.

The EIDL loan agreement also states that:

  • Borrower will obtain and itemize receipts (paid receipts, paid invoices or cancelled checks) and contracts for all Loan funds spent and retain these receipts for 3 years from the date of the final disbursement. Prior to each subsequent disbursement (if any) and whenever requested by SBA, Borrower will submit to SBA such itemization together with copies of the receipts.
  • Borrower will not use, directly or indirectly, any portion of the proceeds of this Loan to relocate without the prior written permission of SBA. The law prohibits the use of any portion of the proceeds of this Loan for voluntary relocation from the business area in which the disaster occurred.
  • Borrower will, to the extent feasible, purchase only American-made equipment and products with the proceeds of this Loan.

So what will happen if your business was about purchasing products from china and selling them here for a profit. if that’s the core of your business then it doesn’t seem to be an issue.

It’s hard tell tell how these clauses in the agreement will be enforced but as long as you pay the loan bank, it won’t really matter.. if you don’t then better do things right and walk the line.

Though EIDL can be used for a wider spectrum of expenses there are some Ineligible uses of the EIDL loan :

  • Dividends and bonuses
  • Disbursement to owners
  • Repayment of principal loans
  • Expansion of facilities
  • Acquisition of fixed assets
  • Repair or replacement of physical damages
  • Refinancing long term debt
  • Relocation

Hope that makes things clearer. Feel free to contact us if you have further questions. If your business only had a brick and mortar store and/or no online presence let us help you get online

Also there are business owners taking up jobs at least for a while till things get better. there is no shame in figuring out another way to survive. Do not hesitate to google Jobs Near Me