By now you’ve probably heard about the strict requirements surrounding the spending of Paycheck Protection Program money if you want your loan forgiven. However, many businesses are still in the dark about how they can (and can’t) spend the Small Business Administration’s (SBA) Economic Injury Disaster Loans (commonly referred to as EIDL).

Some business owners are surprised to learn that EIDL funds have their own set of rules for borrowers. For example, EIDL money is required to be used as “working capital” to alleviate economic injury caused by the coronavirus pandemic after January 31, 2020. In addition, borrowers are required to buy American-made products when they are available.

Generally, it’s permissible for EIDL funds to be used on expenses that fall into the following categories:

  • Fixed debts (rent, etc.);
  • Payroll;
  • Accounts payable; and
  • Some bills that could have been paid had the disaster (here, the pandemic) not occurred.

But wait! EIDL money cannot be spent on:

  • Dividends and bonuses;
  • Disbursements to owners, unless for performance of services;
  • Repayment of stockholder/principal loans (with exceptions);
  • Expansion of facilities or acquisition of fixed assets;
  • Repair or replacement of physical damages;
  • Refinancing long term debt;
  • 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;
  • Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations;
  • Payment for any penalty resulting from noncompliance with a law, regulation or order of a Federal, state, regional, or local agency;
  • Contractor malfeasance; and
  • Relocation.

If you’re a borrower and are unsure about whether you’re compliant with your loan’s requirements, contact us. Our team of attorneys is monitoring the ever-changing guidance on these loans, and we stand ready to assist you.