Details on how to use the SBA EIDL loan funds if your are an Uber, Lyft, Doordash, rideshare, or delivery services driver.
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Over 1.7 million Economic Injury Disaster Loans (EIDLs) have been approved by the Small Business Administration (SBA) as of June 21, 2020. Yet many of those who have received their approval notification are confused about how they can use funds from their EIDL loans.
Many business owners have never used a government loan program like this before and they are worried about the possible consequences of using their EIDL funds incorrectly. They also correctly observe that the guidance isn’t exactly crystal clear, and is especially confusing for independent contractors and the self-employed who may have limited knowledge of small business accounting and terms like working capital that are often associated with financial statements.
In this article we’ll discuss some popular questions we’ve received from EIDL applicants to our articles Frequently Asked Questions about EIDLs and 5 Reasons You May Want to Reconsider An EIDL Loan, as well as in the Facebook group, Business Loan Insight Financing Hub – PPP, EIDL and More on Facebook, where these loans have been a popular topic of discussion. We have edited some of these questions for clarity.
Questions we’ll tackle here include whether you can use EIDL to:
Buy a vehicle or home
Start a new business
Pay rent or mortgages
We’ll also discuss how long you have to use the loan proceeds, what documentation you must keep and what to do if you want to return it.
Keep in mind we will share and discuss guidance from the SBA here but we can’t and don’t speak for them. Do not rely on this article for specific information on how to properly spend your EIDL funds. If you have questions about properly using your loan proceeds, we recommend you talk to your accountant, or your legal or financial advisors. You can also get free assistance by contacting the SBA Disaster hotline, your regional SBA office, your Small Business Development Center (SBDC) and/or SCORE. (Locate your local office at SBA.gov.)
How EIDL Funds May Be Used
EIDL loans weren’t created just for the coronavirus economic crisis. In fact, they’ve been part of the SBA’s Disaster Loan program for many years. They often make national headlines when a natural disaster hits an area, like when Hurricane Harvey caused flooding and business disruption for many parts of Texas. So before we dive into specific questions, let’s look at how these loans were designed to be used. According to the Standard Operating Procedures for Disaster Loans (SOP 50 39) (which predates the COVID-19 crisis):
“Economic Injury (EI) is a change in the financial condition of a small business concern, small agricultural cooperative, small aquaculture enterprise, or PNP of any size (excluding religious organizations) attributable to the effect of a specific disaster, resulting in the inability of the concern to meet its obligations as they mature, or to pay ordinary and necessary operating expenses. (Note: the SBA opened up EIDL to religious organizations impacted by coronavirus.)
Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. Economic injury loan proceeds can only be used for working capital necessary to carry the concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury (emphasis added).”
Many applicants aren’t familiar with the term “working capital,” though, and as a result they find that description confusing. We were unable to find an official SBA definition of working capital, but generally, working capital loans are generally used to pay day-to-day expenses of the business. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments, for example. (Again this isn’t an official SBA definition.)
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