Source: SBA’s Standard Operating Procedures for Disaster Loans.
EIDL proceeds may not be used for (text in red has been affected by the new rules):
- 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
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
- Payments of ongoing fixed expenses such as rent; utilities; insurance
premiums; or the owner’s draw/salary when the draw is both normal and
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 schedule a conversation if you have any questions.