Do's & Don't's of Business Relief Loans

In response to the Coronavirus pandemic, small business owners, including agricultural businesses, and nonprofit organizations in all U.S. states, Washington D.C., and territories can apply for an Economic Injury Disaster Loan [EIDL] from the Small Business Administration. The EIDL program is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue due to coronavirus.

As in all governmental relief programs, the key to approval is the accuracy and punctuality of documentation.

While you may not submit your firm’s documentation automatically, you must keep careful records of how you spend EIDL proceeds in the event of an SBA or other governmental agency future review. Just as there have been audits and inspections of past disasters, there will be scrutiny of some of these loans as well. It would be wise to note all relevant expenditures as “EIDL” in your accounting program and keep an actual hardcopy file with receipts.

What can I spend my EIDL loan proceeds on?

The EIDL program is the least restrictive of the relief programs and allows you to use the loan as working capital. This means any quotidian expenses are a permissible use of your EIDL funds, giving you the freedom to spend it on items such as: Website hosting, Inventory, Office supplies, Accounts payable, Rents and utilities, Merchant fees, Bookkeeping as well as accounting services.

You can also use these proceeds to cover monthly financial obligations such as loan and credit card payments. However, you cannot pay the entirety of the balance of these debts as it would be considered refinancing which is not a permissible use of EIDL funds.

 What can’t I spend my EIDL on?

 While the most flexible of the relief programs, there are some important restrictions to keep in mind. When you signed your loan agreement, you certified that EIDL funds would not be used for any of the following: Dividends and bonuses, Disbursements to owners (draws and distributions), Repayment of stockholder/principal loans, Expansion of facilities or acquisition of fixed assets, Repair or replacement of physical damages, Refinancing long term debt, Paying down federal loans and Relocations

In summation, it may be of assistance to keep in mind the rule of thumb at the essence of this program: funds are provided to meet financial obligations and operating expenses that could have been met had the disaster not occurred.