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How You Can and Cannot Use Your EIDL Loan

How You Can and Cannot Use Your EIDL Loan
Susan Guillory
Susan GuilloryUpdated December 15, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
When the global pandemic was in full force, some U.S. companies struggled to find the capital they needed to stay afloat. The Small Business Administration (SBA) stepped in to help with a loan program that offered aid to businesses in need during the COVID-19 pandemic.If you received a special disaster-relief loan, you may wonder when you'll need to start making payments. For some people, the loans are coming due in late 2022. The SBA extended the deferment period to 30 months from the date of the original note for all COVID-19 EIDL loans approved in calendar years 2020, 2021, and 2022. However, interest continued to accrue on the loans during deferment.Read on to learn what the EIDL loans were best used for, the details of deferment, and how to apply for special hardship accommodations.Recommended: You Built It, Why Didn't They Come? 6 Reasons Small Businesses Fail

What Is the EIDL Loan Program?

The Economic Injury Disaster Loan (EIDL) program is a loan program guaranteed by the SBA. It’s available to small businesses, small agricultural cooperatives, and most private nonprofits in a disaster area that have suffered substantial economic damage. If a business isn’t able to meet its usual operating expenses due to a disaster and can’t get credit elsewhere, it may be eligible for an EIDL loan to see it through. The EIDL program isn’t new, though most business owners are aware of it because of COVID-19. Prior to this pandemic, the loan program offered low-interest loans to businesses and homeowners who were affected by natural disasters like wildfires, earthquakes, and hurricanes.In 2020, however, the focus became providing relief to businesses impacted by the coronavirus. By June 2020, more than 1.7 million EIDL loans had been approved, and that number continued to rise.It is no longer possible to apply for a COVID-19 EIDL loan.As of May 6, 2022, the SBA no longer processed COVID-19 EIDL loan increase requests or requests for reconsideration of previously declined loan applications due to a lack of available funding. As of May 16, 2022, the COVID-19 EIDL portal (covid19relief1.sba.gov, also known as the "RAPID portal") was closed.Recommended: Understanding Different Types of Small Business Loans

What Did an EIDL Loan Look Like?

The maximum amount you could receive for an EIDL loan was $2 million. As of Sept. 8, 2021, this included COVID-19 EIDL loans. The maximum interest rate for such an EIDL loan was 4%. The maximum term of the loan (time during which you pay back the funds plus interest and fees) of an EIDL loan was 30 years. The amount you specifically may have been eligible to receive and other terms varied based on your situation. Collateral is required for loans of more than $25,000, and real estate is the preferred form of collateral.Recommended: What Is the Typical Interest Rate on a Small Business Loan

EIDL Loan Rules

If you're thinking of applying for a loan that is not part of COVID relief, it’s a good idea to research how to get an SBA loan to understand the general requirements and qualifications that the Small Business Administration has. To qualify, your business must:
  • Be a business, agricultural enterprise, cooperative, Employee Stock Ownership Plan (ESOP), or tribal small business concern with 500 or fewer employees or a sole proprietorship or independent contractor or a small private nonprofit
  • Not be engaged in any illegal activity (as defined by Federal guidelines)
  • Not derive more than one-third of its gross annual revenue from legal gambling activities
  • Not be in the business of lobbying
  • Not be a state, local, or municipal government entity nor can you be a member of Congress.
Recommended: Alternative Small Business Loan Options

What Could EIDL Loans Be Used for?

EIDL loan rules about what funds could be used for seem simple on the surface. But it’s important to understand them fully. Businesses could use loan proceeds for working capital or normal operating expenses. That includes:
  • Payroll
  • Health care benefits for employees
  • Rent 
  • Utilities
  • Fixed debt payments
  • Repairs
  • Replacing inventory.
Applicants were required to verify that they used the loan solely as working capital for EIDL-eligible expenses to alleviate economic injury caused by the disaster. The SBA recommended keeping your EIDL funds in a bank account separate from your other finances so you could more easily demonstrate how you used the funds.

EIDL Loan Use Restrictions

Typically, EIDL loans could not be used for a number of purposes. These include:
  • Paying off old debts (see exception for COVID-19 EIDL loans noted in previous section)
  • Refinancing new debt
  • Buying capital assets, new construction, or vehicles
  • Dividends and bonuses
  • Disbursement to owners (unless for performance of services)
  • Repayment of stockholder or principal loans (with certain exceptions)
  • Paying a direct federal debt except for IRS debts (but again, see exception for COVID-19 EIDL loans)

EIDL Loan Use for the Self-Employed

During the pandemic, many sole proprietors of small businesses were wondering about whether you could get EIDL funds if you’re self-employed and what you can use them for.One concern they may have had was establishing how much money they make. Many entrepreneurs don’t get a salary but take out a draw against net revenue instead. The SBA says that lenders can verify income using tax documents and bank statements in either case.And an EIDL loan for self-employed people may be used to cover the following, regardless of whether it’s for the self-employed person or for employees:
  • Wages, commissions, income, or net earnings (capped at $100,000 per employee)
  • Employee benefits (costs for vacation, family, or sick leave)
  • Insurance premiums
  • Retirement benefits
  • State and local taxes

How to Apply for Hardship Accommodation for EIDL

SBA is offering a Hardship Accommodation Plan for borrowers experiencing short-term financial challenges. Borrowers eligible for this plan may make reduced payments for six months. Note: Interest will continue to accrue, which may increase (or create) a balloon payment due at the end of the loan term.

Terms

  • Borrowers are required to pay at least 10% of their monthly payment amount (with a $25 minimum), for six months.  
  • During the Hardship Accommodation period, borrowers can voluntarily make larger payments.
  • The regular monthly payment amount will resume and be required after the six-month Hardship Accommodation period ends. Borrowers may be able to renew the Hardship Accommodation Plan, if necessary.

Eligibility & Enrollment

Borrowers are eligible to enroll in the Hardship Accommodation Plan beginning 60 calendar days before their first payment due date. 

If your loan amount is less than or equal to $200,000:

To enroll in the Hardship Accommodation Plan,  create a CAFS account  or log in to your existing account. Within CAFS, hover over "Borrower" and select "Borrower Search." Select the appropriate loan number and request the Hardship Accommodation on the Loan Info page.

If your loan amount exceeds $200,000: 

To apply, contact the COVID-19 EIDL Servicing Center at 833-853-5638 or [email protected] (and include “Hardship Accommodation Plan” in the subject line). You will be contacted by a loan specialist regarding requirements.Recommended: The Essentials on Small Business Funding and Building Credit

Alternatives to the EIDL Loan

The COVID EIDL loan program closed, but you may still need capital to run your business while things are slow. You can take out emergency business loans, but know that you may pay a much higher interest rate for the convenience.There are other types of financing available that small business owners might consider, too, including:Some of these require a high credit score, while others may look more closely at your revenues than your credit. If your business struggled because of the pandemic, taking out an EIDL loan could have provided the relief you needed to make it through to better times. But there are also a lot of other options to choose from when you’re looking for small business financing. Whether you want to search for other SBA programs or discover online loan options, Lantern Credit lets you compare lenders with a simple application.

Frequently Asked Questions

What can EIDL loans be used for?
Can I use EIDL funds to pay myself?
What can I spend my EIDL loan on?
Can I use EIDL loan money to pay credit card debt?
How much EIDL loan money can I get?
Can I use an EIDL loan to pay taxes?
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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