What expenses are eligible for SBA EIDL loans?

Small Business Administration loans, particularly SBA EIDL or Economic Injury Disaster Loans, continue to be a hot topic. Today I answer a question from Charles about what expenses are eligible for an SBA EIDL loan. Before I get to that I want to revisit the purpose of the EIDL program and how it is different than the PPP loans that the SBA also offered during the pandemic.

What is the SBA EIDL program?

The SBA Economic Injury Disaster Loan program is not new and was around before the coronavirus pandemic. The program was designed to assist small businesses when they are impacted by a major event. For example, EIDL loans are often made to small businesses that are impacted by natural disasters such as hurricanes and the like. These are small business loans with low interest rates. Currently that rate is set at 3.75% for companies that are for-profit and 2.75% for non-profits.

What expenses are eligible for the SBA EIDL program?

Some of the eligible expenses for the EIDL program do crossover with PPP loans. However, in general, EIDL loans can be used for a wider range of expenses.

EIDL loans can be used for the following expenses according to the SBA’s guidance on the program.

• Fixed debts — which includes rent but isn’t limited to that
• Payroll
• Accounts Payable — so, bills you owe to suppliers for example
• Other expenses that “could have been paid had the disaster not occurred” — this is a bit vague

Expenses that are not eligible include:

• Dividends and bonuses
• Owner’s distributions unless as part of pay for performance
• Repayment of owner’s loans to the company
• Expansion of facilities or the purchase of fixed assets (like equipment)
• Refinancing long term debt or existing SBA loans

How is the SBA EIDL program different than PPP loans?

I’ve previously talked about the exact details of these two programs. You can find those articles here and here.

So, instead of going back over all of the details here are some of the key differentiations between the two loan programs.

• PPP loans are made at 1% interest, versus 3.75% interest for SBA EIDL loans
• You apply for PPP loans by going through an approved SBA lender. EIDL loan applications are made directly to the SBA
• PPP loans can be forgiven up to 100% as long as you meet the stipulations around payroll head count
• EIDL loans are still being offered as of today. The PPP loan program is currently not accepting new applications
• PPP loans are meant to be used for payroll, mortgage or lease payments, and utilities
• The payback period for a PPP loan is shorter than that of the EIDL program (up to 30 years)
• You can get an “immediate” $10k advance on your loan proceeds through the EIDL program
• PPP loan proceeds are limited to a multiplier of your average payroll. EIDL loans can go up to $2M

Wrapping up

The key to remember is that if you can apply for both SBA loan program. Assuming the SBA starts offering more PPP loans. As of right now the only option available of the two is the EIDL program. Finally, keep in mind that the SBA is still offering traditional 7(a) loans. While the terms of those loans aren’t as good they are still affordable.

Until next time, if there is anything I can help you with be sure to say reach out to me at jmp@jonathanmillspatrick.com. I’ll do my best to point you in the right direction.