Economic Injury Disaster Loan Use of Proceeds

Now that the Small Business Administration has caught up with all of the requests for Economic Injury Disaster Loans (EIDL) and has started funding these loans, there are a lot of additional questions. “Are there restrictions on how I use this loan?” is the most common question we’ve received in our office.

Like all government programs, there are rules for the use of this loan. Much like the PPP loan program, we recommend that you open a separate bank account to disburse funds from this loan. Failure to follow the rules could cause your loan to become immediately due and payable.

Unlike the PPP loan, the allowed expenditures are not specifically spelled out. The funds can be used as “working capital” due to economic injury after January 31, 2019. The loans are not intended to replace sales and profits, but rather cover expenses that would have been paid by the business if the disaster hadn’t occurred.

Here are some examples of allowed and disallowed costs.

You can:

• Pay rent
• Pay lease/debt payments (not credit cards)
• Pay vendors
• Pay tax obligations
• Pay ordinary and necessary financial obligations

You cannot:

• Pay dividends or bonuses
• Disburse funds to owners (distributions)
• Repay shareholder loans
• Expand your operations
• Make improvements to your business location
• Refinance existing debt
• Pay down government loans
• Fund relocation
• Fund lobbying activities
• Pay penalties or fines
• Double fund PPP loan expenses

Additionally, the forgivable amount of your PPP loan may be impacted by your EIDL grant. While it’s tempting to manage these loans yourself because times are tough and budgets are tight, getting it wrong could end up costing you more in the end. Please reach out to an up-to-date accountant for help managing these loans.