So, you took an EIDL Loan, now what?

Many businesses that tool an Economic Injury Disaster Loans (EIDL) the Small Business Administration (SBA) offered during the Covid-19 pandemic are now starting to get notices that payments under those loans are going to begin soon. EIDL loans had an 18-month deferral period from the date you took the loan, and for many, those loans now are starting to require payments.

In addition to making your regular scheduled payments now, there are a few loan covenants that most EIDL loans contain and you may not be aware of. Some of those loan covenants may contain restrictions like:

1. Borrower will not sell or transfer any collateral (except normal inventory) without prior SBA consent.
2. Borrower will obtain itemized receipts and contracts for all loan funds spent and retain those for 3 years from the date of final disbursement.
3. Borrower will not relocate without SBA approval.
4. Borrower will, to extent feasible, purchase American-made equipment and products with the proceeds from the loan.
5. Notify SBA of any claim for insurance (like a business interruption claim) and submit proceeds to the SBA.
6. Maintain books and records in a manner sufficient to the SBA for trailing 5 years and then 3 years after loan is paid off.
7. Furnish SBA financial statements within 90 days of each fiscal year of borrower.
8. Authorize the SBA to receive copies of all tax returns for examination by SBA.
9. Not make any distribution of borrower’s assets by way of loan, gift, bonus, or otherwise to any partner, owner or employee without SBA consent.

As you can see from the above examples, some of these can be very restrictive and we recommend you consult your CPA and Attorney on these matters, before you assume you are free to just do as you wish with your business finances once you’ve received an EIDL loan. Each EIDL loan is a specific legal instrument, you may or may not have some of the above examples in your loan.

The questions are endless, but here at Interactive Accountants, we want our clients to be informed of what is happening in the tax world!

Should you wish to talk about your EIDL loan and what to do/not to do, book a free 30 minutes consultation with our owner Matthew Shiebler, CPA. He’s been practicing accounting for over 25 years now and is a business owner, just like you!