If you’ve secured yourself a loan through the SBA’s EIDL program, you’ve gained a low-interest loan that can be used immediately to cover day-to-day activity in your business. But before you start spending the funds, you should know about a few important restrictions on EIDL use.
What can I spend my EIDL loan 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 day-to-day expenses are a permissible use of your EIDL funds, giving you the freedom to spend it on anything like:
- Web hosting
- Office supplies
- Accounts payable
- Rent and utilities
- Merchant fees
- Bookkeeping and accounting services
If you have obtained an EIDL and a PPP loan, you cannot use the EIDL to cover the same expenses over the 8 or 24 week period. However, once you have used up the entirety of the PPP loan, you can use the EIDL to cover the payroll, rent, lease, mortgage interest, and utilities expenses you would have otherwise used the PPP loan to cover.
You can also use it 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.
Can I refinance my debts using my EIDL funds?
With a recent change made by the SBA, EIDL funds can now be used to pay or prepay commercial debt. Essentially, you can pay down the entire outstanding balance of a commercial loan obtained through traditional lenders with your EIDL funds.
You can also make payments on your federal business debt (e.g. other SBA loans). However, prepayments are not allowed—you can only use EIDL funds on your regularly scheduled payments.
What can I spend my EIDL advance on?
The EIDL advance is a grant that was available for a limited time for EIDL applicants. The grant was based on $1,000 per employee up to a maximum of $10,000. As a grant, this can be used as working capital, essentially covering any day-to-day expenses your business needs.
Further reading: What Is the $10,000 SBA EIDL Grant?
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), except when directly related to performance of services
- Repair or replacement of physical damages
Note: While previous restrictions did not allow EIDL funds to be used for expansion of facilities or acquisition of fixed assets (e.g., purchasing equipment such as a new camera) or repayment of stockholder/principal loans, SBA guidelines changed in September 2021 to allow for these uses.
What if I have a PPP loan?
The PPP and the EIDL are designed to be used together so naturally there are some conditions regarding what the loans can be used on if you have both. In particular, the EIDL cannot be used on the same expenses that are covered by the PPP within the 8 to 24 week forgiveness period.
As a refresher, here’s what you can use your PPP funds for:
- Payroll expenses (gross salary or wages, gross tips, gross commissions, allowances for dismissal or separation paid, employee benefits costs, and any type of paid leave including vacation, family, medical or sick leave but not including leave covered by the Families First Coronavirus Response Act)
- Rent or lease payments
- The interest portion of mortgage payments
That being said, you can use your EIDL funds on the above expenses if you won’t be claiming them under the PPP. Say for example you spend the whole PPP amount on payroll and rent—you could still use your EIDL funds on utilities expenses.
Further reading: How to Use the PPP and EIDL Together
What’s best practice for tracking the use of my EIDL funds?
Keeping your EIDL funds in a separate bank account will be the easiest way to track how they are being used. If prompted by the SBA, you can simply provide bank statements to show the entire transaction history related to your EIDL funds.
Ultimately, there’s no set requirement for which business account you spend the funds from. Simply track all eligible expenses that you can attribute to the EIDL. It will be up to you to self-report what business activity you used EIDL funds for while you are in possession of the loan if prompted by the SBA.
How Bench can help
Businesses that received an EIDL loan need to file financial statements to the SBA within 3 months of the end of their fiscal year. With Bench, you get up-to-date financial statements completed and reviewed by an expert bookkeeper every month. We’ll help you meet the reporting requirements for the EIDL and even help you file your taxes. Learn more.