EIDL – What You Need To Know

The EIDL loan may be the saving grace for businesses and non profits during these trying COVID-19 times. EIDL stands for Economic Injury Disaster Loans. Here’s what you need to understand about EIDL:

Purpose of EIDL: The EIDL’s purpose is to help businesses meet financial obligations and operating expenses that could have been met had the disaster not occurred. The EIDL advance is forgivable, if you didn’t receive the PPP, but not the full EIDL. The Advance does impact the amount of forgiveness if you also received the PPP (Paycheck Protection Program) funding. In other words, you can’t have both the PPP and EIDL Advance forgiven or use the funds for the same expenses. I have recommended to my clients not to apply for the Advance on the EIDL if they received the PPP or just to know if they receive it then the Advance won’t be forgiven. Do understand that the regular EIDL is a debt obligation you are taking on and will be responsible for paying back.

Receiving the EIDL: EIDL is available for small businesses, nonprofits and agricultural businesses to help them through the COVID-19 pandemic. Designed to help pay bills during the reduction of revenue due to COVID-19. It can be used to provide working capital and help cover normal operating expenses. It can’t be used for the same dollars you are counting towards the PPP but it can be used for expenses including rent, utilities, fixed debt payments, health care benefits, accounts payable, utilities.

Also understand what it can NOT be used for:

1. Payments of dividends or bonuses.

2. Disbursements to owners, partners, officers, directors or stockholders except when payment is directly related to performance of services.

3. Repayment of stockholder loans, except for those that were provided during COVID-19 due to the disaster and not repaying would cause undue hardship to the stockholder.

4. Acquisition of fixed assets or expansion of facilities.

5.Refinancing long term debt or paying down or paying off loans provided by another entity, including SBA.

6. Payment of penalties received resulting from noncompliance of a law, regulation or order of a federal, state or local agencies.

7. Relocation

Repayment of EIDL: Term is 30 years and rate is 3.75% for businesses and 2.75% for nonprofits.

The EIDL if used how it is intended will provide help to many businesses who are suffering and will keep them from going out of business, just be sure to follow the rules and don’t use it for things that are not allowed. Also note that you are putting your business assets up as collateral so read the fine print when you sign the documents for EIDL as it clearly states that you can’t sell off assets etc that are part of the business at the time you accept the EIDL. It’s similar to loan requirements any time you accept a business loan.

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