As we wrote last week, the SBA is now reaching out to small business owners that their Economic Injury Disaster Loans are now available.  That article is available at: https://www.schwartzaccountants.com/2020/05/economic-injury-disaster-loans-eidl-are-now-granted/

There are a variety of issues to be aware of an you make your decision whether to take the EIDL. According to info available at: https://www.sba.gov/sites/default/files/articles/EIDL_Information_and_Documentation_-_3-23-2020.pdf

How can I use the loan funds?

  • Fixed debts (rent, etc.)
  • Payroll
  • Accounts payable
  • Some bills that could have been paid had the disaster not occurred.

Ineligible Uses of Loan

  • Dividends and bonuses
  • Disbursements to owners, etc. except when directly related to performance of services
  • Repayment of stockholder/principal loans, except when the funds were injected on an interim basis because of the disaster and nonrepayment would cause undue hardship to the stockholder/principal
  • Expansion of facilities or acquisition of fixed assets
  • Repair or replacement of physical damages
  • Refinancing long term debt
  • Paying down (including regular installment payments) or paying off loans provided, or owned by another Federal agency (including SBA) or a Small Business Investment Company
  • Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations
  • Relocation

I heard from a client who reviewed the Loan Document very carefully and saw that the SBA has the right to request Reviewed Financial Statements for your practice each year that you have the EIDL outstanding.  While not as comprehensive as an Audit of your practice’s finances, having a CPA firm provide you with a higher lever accounting service called a Review will cost around $3,000 each time.  I’m not sure the SBA will request Reviews for practices borrowing $150k, but if they do, that increases the cost of your $150k loan by 2%, effectively causing the 3.75% interest rate to jump to 5.75%.

Here is the text from the loan document:

“BOOKS AND RECORDS
· Borrower will maintain current and proper books of account in a manner satisfactory to SBA for the most recent 5 years until 3 years after the date of maturity, including extensions, or the date this Loan is paid in full, whichever occurs first. Such books will include Borrower’s financial and operating statements, insurance policies, tax returns and related filings, records of earnings distributed and dividends paid and records of compensation to officers, directors, holders of 10% or more of Borrower’s capital stock, members, partners and proprietors.
· Borrower authorizes SBA to make or cause to be made, at Borrower’s expense and in such a manner and at such times as SBA may require: (1) inspections and audits of any books, records and paper in the custody or control of Borrower or others relating to Borrower’s financial or business conditions, including the making of copies thereof and extracts therefrom, and (2) inspections and appraisals of any of Borrower’s assets.
· Borrower will furnish to SBA, not later than 3 months following the expiration of Borrower’s fiscal year and in such form as SBA may require, Borrower’s financial statements. Upon written request of SBA, Borrower will accompany such statements with an ‘Accountant’s Review Report’ prepared by an independent public accountant at Borrower’s expense.