EIDL program benefits & fund allocation strategies

Jul 14, 2020

Background on EIDL Program Funds

Known as the Economic Injury Disaster Loan, this program has been utilized heavily in the past as a way for small business owners to support themselves after they have been impacted by natural disasters such as hurricanes, tornadoes, or earthquakes. However, the CARES act has recently expanded their definition of a “disaster” to include national health emergencies, as well as loosening many of their qualification requirements in order to allow many small businesses the opportunity to obtain emergency liquidity during these times. This is a massive opportunity for small business owners to capitalize on.

Grants and Loans

A one-time emergency grant of $1,000 per employee with a maximum of $10,000 has been added to the EIDL program by the CARES Act. It is also important to note that if you received the PPP loan, participation in the EIDL grant will reduce the forgivable portion of the PPP loan dollar for dollar.

In regard to the EIDL loan program, all borrowers are authorized to qualify for a loan up to $2,000,000 as determined by the Small Business Association. Repayment on these loans are over a 30-year period with a percentage of 3.75% paid on each payment date. In addition, this loan contains a 12- month payment deferral period which begin on the loan date. There is no penalty for paying off the loan early should you find yourself able.

Use and Allocation of Proceeds

EIDL funds can be used for general operating expenses for your business, including the purchasing of supplies, equipment, and other fixed expense. These funds cannot be used for physical repairs, expansion of facilities, acquisition of fixed assets, bonuses, owner distributions, or refinancing existing debt.

If you have already received a PPP loan, then SBA guidelines state that these disbursements cannot be used for the same purpose. Therefore, EIDL proceeds cannot go towards PPP qualified expenses such as payroll, rent, or loan interest. If you haven’t received a PPP loan this does not apply.

It is highly recommended that all funds received from these loans be kept in a separate account in order to keep all documentation handy. Similarly, to PPP loans, having proper documentation and support for the use of funds borrowed is paramount to ensuring that an insurmountable amount of paperwork doesn’t trail you into the future. Ensure you are keeping clean and timely records of funds spent in the event that you need to provide this documentation to the SBA.

In the event that you have already received the PPP loan, it is recommended that you utilize the PPP loan first for qualified expenses and then the EIDL loan to supplement and pay for general operating expenses. As your practice continues to ramp up and increase collections over time, the two loans can be used to cover overhead costs, which would allow the ability to build up additional cash flow in the practice and potentially pay down existing debt.

Download Wealth Creation 360 Worksheet


With our personalized business consulting and tax services, we have the ideal solutions for you.