EIDL Loan – Important Details You May Have Missed

As we get further into tax season, I’m seeing more clients with EIDL loans.  I’m also seeing folks not having or understanding all of the information about these loans, so here are the basics:

The EIDL loan proceeds are intended to pay for your normal operating costs of doing business to keep you open & in business when you otherwise would not be able to pay those costs due to COVID-19.

It is appropriate to use these funds for operating costs such as payroll (that is not covered by PPP loan), rent, supplies, utilities, insurance, technology, and all of the other normal operating costs of running a business.

This only applies to the costs of the business that received the loan – so if you have multiple businesses, you cannot use one EIDL loan to cover costs in the other business, you would need an EIDL loan for each business.


The EIDL loan funds can NOT be used for:
  • refinancing other debts
  • paying off other debts
  • making loan payments on other federal debts
  • repairing physical damages
  • paying IRS tax penalties
  • paying out dividends/draws to owners
  • paying increased salary to owners (because you’re not taking draws)
  • business expansion into new projects or new lines of business.


The EIDL loan also has certain loan covenants that many people missed or misunderstood.  The most critical to know about are the following:

  • For loans over $25,000, the collateral for the loan is EVERY & ALL Assets of your company – both physical and intangible assets.
  • You must obtain SBA approval before you pay out a company dividend/draw to owners. This is also true for any attempt to do the same thing but in a different way such as paying out a big bonus to an owner or paying a large payroll advance, etc.
  • You must obtain SBA approval before you sell any assets, trade-in any assets for others, or otherwise remove any funds or assets from the business (except inventory can be sold without prior approval).
  • You must give SBA 30 days notice prior to moving your business location, changing your business name, or changing your business structure
  • You must keep detailed receipts of how you used the funds for 3 years and full accounting records for the term of the loan plus 3 years. These are subject to review by the SBA.
  • You are required to provide financial statements to the SBA annually (generally due by the end of March for the prior year).


If you have further detailed questions about how your specific loan works or what can & cannot be covered with the proceeds, please contact the SBA loan officer working with you.  They are your best source of detailed information for your specific loan.