Can I Use SBA EIDL Loan To Pay Off Debt (What Can I Spend My EIDL Loan On?)

Everyone knows how great SBA loans, with their easy payback system, but if your business has been affected by the pandemic, as so many businesses have, is the EIDL loan (Economic Injury Disaster Loan) going to help you to send any moneys owed to your debtors?

Just like with personal credit, your business, if it’s to survive these tough times, needs to be seen as being able to pay back its debtors. Because without them many business owners simply wouldn’t have a business.

The EIDL loan was put in place to aid businesses that struggle under the Covid-19 pandemic economic conditions. And it’s safe to say that whole industries suffered as a result. Many business owners felt it was time to give up and move on. But for some businesses the EIDL has proved to be a lifeline.

In this article, we’re going to explore what an EIDL loan can be spent on, whether it can be used to pay off debt, and what it can’t be spent on. Then we’re going to follow that up with a few FAQs on the subject.

What Can I Spend My EIDL Loan On?

The SBA states that the proceeds of the EIDL loan are to go towards “working capital to make regular payments for operating expenses.”

This is a very broad definition by anyone’s standards. But thankfully, the SBA goes on to specify examples of what may constitute this working capital for operating expenses. Here’s a quick rundown:

  • Rent or mortgage of any premises
  • Payroll for you and your employees
  • Any utility bills you have to pay, and
  • Other ordinary business expenses

And that sure covers a whole lot of payments. Ordinarily these may have included employee travel and meeting expenses and such. But in the advent of the Covid-19 pandemic, the term “ordinary business expenses” would have expanded to include various means of non face-to-face meetings via such software as Zoom and Microsoft Teams and so on.

But that’s still not the whole story of what your EIDL loan can be spent on. Which leads us onto our next section.

Can I Use SBA EIDL Loan To Pay Off Debt?

We’re pleased to report that the SBA has also stipulated that the proceeds of the SBA Covid EIDL loan can also be used to pay (or prepay) debts incurred at any time.

And this refers to both regularly scheduled payments on federal debt, and also non-federal debt.

And this is where the EIDL loan really comes into its own. Your loan is not restricted to current payments and debts only, but you can also use it to pay off debt incurred previously. Similarly if you feel you may struggle to pay off any future debts, the EIDL proceeds can go towards this also.

Sounds almost too good to be true, huh? But it’s there, in their guidelines, in black and white for all to see on their website.

But (I knew you sensed there was a but coming) the loan does stipulate certain things that the EIDL proceeds cannot be used for. Which brings us onto our next section.

What Can’t The SBA Covid EIDL Loan Be Spent On?

As is their right, the SBA can stipulate things that the proceeds cannot be spent on…

You cannot use the funds to expand your business. You cannot use the funds to start a new business. And you cannot use it to make prepayments on debt owned by a federal agency or an SBIC.

And sure it does suck that you don’t get to expand your business or start a new one with the money. But you have to admit that going for an EIDL loan can greatly improve your business chances, even if it is just to keep things ticking over until you can start afresh. Or to help with your business credit score if the business was struggling in that respect.

And I’ll bet that you’re already forming a list in your head about who you can pay off.

Now we’ll tackle some more of your most frequently asked questions.

Frequently Asked Questions

Can I Pay Myself With An SBA EIDL Loan?

The SBA states that EIDL can't be used to pay: “Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant.”

And by this definition, this means that a business owner can continue to pay themselves a working wage.

How Much Of An EIDL Loan Can I Get?

As of April 6, 2021, the SBA has raised the loan limit from 6 months of economic injury with a max amount of $150,000 up to 24 months of economic injury with a max loan amount of $500,000.

So there are significant funds available if you should need them.

Will My EIDL Loan Be Audited?

We can confirm that EIDL loans are subject to single audit requirements.

Do EIDL Loans Show Up On Credit Reports?

Loans made by the SBA, including EIDL loans should not appear on either your personal or your business credit report. But there is an exception…

For loans of $25,000 or more, the SBA files a UCC-1 filing. And these can appear on business credit reports.

Wrap Up

If you feel that your business has suffered an economic injury, then by all means you should seek out all the help you can find. An EIDL loan would be a great choice for many businesses across several industries.

But to understand whether this loan is right for you, you need to thoroughly consider what you would use the proceeds for, and exactly where the money is going to go.

If you’re not particularly confident when it comes to dealing with your business finances, you can always talk to an accountant. Moreover, you can use a portion of your funding to pay for an accountant to do just that.

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