Future versions of my presentation will include this list of ineligible uses of EIDL loan proceeds. It was by far the single clause that triggered the most questions. Instead of tracking everyone who asked for the list and sending it out individually, I figured it might be better to simply list it here, on the resource page, and have everyone be able to benefit from it. I also received a lot of questions on owners being able to pay themselves, and on what constitutes extraordinary items. My source is the SBA’s Standard Operating Procedures for Disaster Loans. So, here goes:
EIDL proceeds may not be used for:
- Payment of any dividends or bonuses;
- Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant;
- Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster and non-repayment would cause undue hardship to the stockholder/principal;
- Expansion of facilities or acquisition of fixed assets;
- Repair or replacement of physical damages;
- Refinancing long term debt (see below);
- Paying down (including regular installment payments) or paying off loans provided, or owned by another Federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act. Federal Deposit Insurance Corporation (FDIC) is not considered a Federal agency for this purpose;
- Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations. (Additional requirements regarding the payment of federal debt start on page 75 of the SOP.)
- Pay any penalty resulting from noncompliance with a law, regulation or order of a Federal, state, regional, or local agency.
- Contractor malfeasance; and
- Relocation
As for being able to pay yourself, the SOP (on page 186) says the following:
Future needs are normal obligations, which the business would not be able to meet throughout the remainder of the injury period. They will sometimes be a
continuation of to-date needs, such as:
- Fixed debt payments necessary to maintain the current status of long term
debts; or - Payments of ongoing fixed expenses such as rent; utilities; insurance
premiums; or the owner’s draw/salary when the draw is both normal and
essential.
Finally, there’s a provision for “extraordinary items”:
Extraordinary items are needs outside of normal operations and directly caused by the disaster. Extraordinary items can include:
- Temporary rent or storage fees, additional advertising costs, etc.;
- Accelerated debt due to the disaster;
- Inventory replacement may be an extraordinary item. For example, in the
spring, a clothing store located in a disaster area is left with an inventory of
winter clothing and has no funds to order summer stock. The cost of ordering summer inventory represents an additional need.
I hope this was helpful. Email me or fill out the intake form if you have any questions.