US CODE Referenced in HR 748 USE OF FUNDS for SBA Economic Injury Disaster Loans.
Published August 6 2020 updated August 6 2020 14 min. 40 seconds read
More information about what you can use your SBA EIDL for. Its working capital, its for reduction in revenue earnings during a disaster and we are in a declared disaster which should mean you cut back when you can and budget.
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(4) USE OF FUNDS.&mdashAn advance provided under this subsection may be used to address any allowable purpose for a loan made under section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)), including&mdash
(A) providing paid sick leave to employees unable to work due to the direct effect of the COVID&ndash19
(B) maintaining payroll to retain employees during business disruptions or substantial slowdowns
(C) meeting increased costs to obtain materials unavailable from the applicant&rsquos original source due to interrupted supply chains
(D) making rent or mortgage payments and
(E) repaying obligations that cannot be met due to revenue losses.
**UNIT NOTE: **Use of Funds uses the word "advance" but it's not implied that your advance is used for any of the items listed. The total EIDL is considered an advance for your business to continue. If you look to section (6) you will see the word "advance" used again but this advance is what you use toward payroll and is allowed to be merged into the Payroll Protection Program (PPP) for forgiveness.
"(6) UNEMPLOYMENT GRANT.&mdashIf an applicant that receives an advance under this subsection transfers into, or is approved for, the loan program under section 7(a) of the Small Business Act (15 U.S.C. 636(a)), the advance amount shall be reduced from the loan forgiveness amount for a loan for payroll costs made under such section 7(a)."
US CODE Referenced in HR 748.
(3) Use of loans
A loan guaranteed by the Administrator under this subsection may be used for any purpose authorized under subsection (b).
**(b) **Disaster loans authorization, scope, terms and conditions, etc.
Except as to agricultural enterprises as defined in section 647(b)(1) of this title, the Administration also is empowered to the extent and in such amounts as provided in advance in appropriation Acts-
(1)(A) to make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred (guaranteed) basis) as the Administration may determine to be necessary or appropriate to repair, rehabilitate or replace property, real or personal, damaged or destroyed by or as a result of natural or other disasters: Provided, That such damage or destruction is not compensated for by insurance or otherwise: And provided further, That the Administration may increase the amount of the loan by up to an additional 20 per centum of the aggregate costs of such damage or destruction (whether or not compensated for by insurance or otherwise) if it determines such increase to be necessary or appropriate in order to protect the damaged or destroyed property from possible future disasters by taking mitigating measures, including-
(i) construction of retaining walls and sea walls
(ii) grading and contouring land and
(iii) relocating utilities and modifying structures, including construction of a safe room or similar storm shelter designed to protect property and occupants from tornadoes or other natural disasters, if such safe room or similar storm shelter is constructed in accordance with applicable standards issued by the Federal Emergency Management Agency
(B) to refinance any mortgage or other lien against a totally destroyed or substantially damaged home or business concern: Provided, That no loan or guarantee shall be extended unless the Administration finds that (i) the applicant is not able to obtain credit elsewhere (ii) such property is to be repaired, rehabilitated, or replaced (iii) the amount refinanced shall not exceed the amount of physical loss sustained and (iv) such amounts shall be reduced to the extent such mortgage or lien is satisfied by insurance or otherwise and
(C) during fiscal years 2000 through 2004, to establish a predisaster mitigation program to make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred (guaranteed) basis), as the Administrator may determine to be necessary or appropriate, to enable small businesses to use mitigation techniques in support of a formal mitigation program established by the Federal Emergency Management Agency, except that no loan or guarantee may be extended to a small business under this subparagraph unless the Administration finds that the small business is otherwise unable to obtain credit for the purposes described in this subparagraph
(2) to make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred (guaranteed) basis) as the Administration may determine to be necessary or appropriate to any small business concern, private nonprofit organization, or small agricultural cooperative located in an area affected by a disaster,7 (including drought), with respect to both farm-related and nonfarm-related small business concerns, if the Administration determines that the concern, the organization, or the cooperative has suffered a substantial economic injury as a result of such disaster and if such disaster constitutes-
(A) a major disaster, as determined by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.)
(B) a natural disaster, as determined by the Secretary of Agriculture pursuant to section 1961 of title 7, in which case, assistance under this paragraph may be provided to farm-related and nonfarm-related small business concerns, subject to the other applicable requirements of this paragraph
(C) a disaster, as determined by the Administrator of the Small Business Administration
(D) an emergency involving Federal primary responsibility determined to exist by the President under the section 5191(b) of title 42 or
(E) if no disaster or emergency declaration has been issued pursuant to subparagraph (A), (B), (C), or (D), the Governor of a State in which a disaster or emergency has occurred may certify to the Small Business Administration that small business concerns, private nonprofit organizations, or small agricultural cooperatives (1) have suffered economic injury as a result of such disaster or emergency, and (2) are in need of financial assistance which is not available on reasonable terms in the disaster- or emergency-stricken area. Not later than 30 days after the date of receipt of such certification by a Governor of a State, the Administration shall respond in writing to that Governor on its determination and the reasons therefore,8 and may then make such loans as would have been available under this paragraph if a disaster or emergency declaration had been issued.
Provided, That no loan or guarantee shall be extended pursuant to this paragraph (2) unless the Administration finds that the applicant is not able to obtain credit elsewhere: Provided further, That for purposes of subparagraph (D), the Administrator shall deem that such an emergency affects each State or subdivision thereof (including counties), and that each State or subdivision has sufficient economic damage to small business concerns to qualify for assistance under this paragraph and the Administrator shall accept applications for such assistance immediately.
(3)(A) In this paragraph-
(i) the term "active service" has the meaning given that term in section 101(d)(3) of title 10
(ii) the term "essential employee" means an individual who is employed by a small business concern and whose managerial or technical expertise is critical to the successful day-to-day operations of that small business concern and
(iii) the term "substantial economic injury" means an economic harm to a business concern that results in the inability of the business concern-
(I) to meet its obligations as they mature
(II) to pay its ordinary and necessary operating expenses or
(III) to market, produce, or provide a product or service ordinarily marketed, produced, or provided by the business concern.
(B) The Administration may make such disaster loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis) to assist a small business concern that has suffered or that is likely to suffer substantial economic injury as the result of an essential employee of such small business concern being ordered to perform active service for a period of more than 30 consecutive days.
(C) A small business concern described in subparagraph (B) shall be eligible to apply for assistance under this paragraph during the period beginning on the date on which the essential employee is ordered to active service and ending on the date that is 1 year after the date on which such essential employee is discharged or released from active service. The Administrator may, when appropriate (as determined by the Administrator), extend the ending date specified in the preceding sentence by not more than 1 year.
(D) Any loan or guarantee extended pursuant to this paragraph shall be made at the same interest rate as economic injury loans under paragraph (2).
(E) No loan may be made under this paragraph, either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis, if the total amount outstanding and committed to the borrower under this subsection would exceed $1,500,000, unless such applicant constitutes, or have 9 become due to changed economic circumstances, a major source of employment in its surrounding area, as determined by the Administration, in which case the Administration, in its discretion, may waive the $1,500,000 limitation.
(F) For purposes of assistance under this paragraph, no declaration of a disaster area shall be required.
(G)(i) Notwithstanding any other provision of law, the Administrator may make a loan under this paragraph of not more than $50,000 without collateral.
(ii) The Administrator may defer payment of principal and interest on a loan described in clause (i) during the longer of-
(I) the 1-year period beginning on the date of the initial disbursement of the loan and
(II) the period during which the relevant essential employee is on active service.
UNIT NOTE: The US Code continues but I'll stop here because by this point we covered just about all issues related to the COVID-19 pandemic. I can add that we do have references specific to COVID-19 but this will keep you safe during your first audit in 3 to 7 years. Follow the link to read the full section (b) and to view all references of the page related to COVID-19.
Start at **(b) **Disaster loans authorization, scope, terms and conditions, etc.
**UNIT NOTE: ** Using your EIDL document reference to SBA SOP 50 30 8 (I'll update to version 9 in the next note.)
Starting from the SBA Loan Officers SOP page 73.
C. Basic EIDL Eligibility Determinations You must make three basic eligibility determinations on all EIDL applications.
Location. Section 7(b) (2) of the Small Business Act requires that all EIDL applicants be located in a declared disaster area. This includes all counties covered in the declaration. There must be a physical presence in the disaster- affected area for a business to be eligible. An applicant's economic presence alone in the affected area(s) does not meet this location requirement. The applicant must demonstrate a physical presence. The physical presence must relate to the claimed economic injury and should be tangible and significant. Merely having a P.O. Box in the disaster area would not qualify as a physical presence.
Business Activity. You must consider two measures of business activity. Both must be an eligible activity in order for the applicant to be eligible for EIDL assistance.
a. Business Loss Activity: The activity for which the loss is being claimed must be eligible. Agricultural enterprises (excluding aquaculture) are the most common ineligible activities conducted by sole proprietors. If this is the primary industry, the proprietor is ineligible regardless of the nature of the activity claiming the loss. (For the specific policy concerning the eligibility of agricultural enterprises, see paragraph 3.30 F 1 x)
b. Primary Industry: You must determine if the applicant business concern, combined with its affiliates (refer to SOP subparagraph 2.4 A 5 b (3), 3.32 C., and 13 CFR §121.103 for guidance on determining affiliation), conducts more than one type of business. If so, you must identify the primary industry of the affiliated group. This is generally the activity producing the most revenue (refer to 13 CFR §121.107). The primary industry of the affiliated group must be an otherwise eligible activity for the applicant to be eligible, regardless of the nature of the loss activity.
For example: Joe Smith owns 100% of a corporation named ABC, Inc. which operates a clothing store. ABC, Inc. applied for an EIDL as a result of a 2014 disaster. Mr. Smith also owns a farm and reports income from his farm operation on Schedule F of his personal IRS Form 1040, Federal Income Tax Return. He reported gross revenue of $750,000 for the farm operation in 2013 which was the year preceding the disaster. The gross revenue for ABC, Inc. in 2013 was $240,000. As a result, the primary industry of the affiliated group is farming which is ineligible for EIDL assistance. Farming is the primary industry because the farm operation generated more gross revenue in the year preceding the disaster than the clothing store. This means neither the farm operation nor ABC, Inc. would be eligible to receive an EIDL. However, if ABC, Inc. had physical losses as a result of the disaster, it would be eligible for a physical loan only.
Size. An applicant for an EIDL must be a small business concern. The applicant business, including any affiliates, must satisfy two criteria (13 CFR §121.301 and paragraph 3.32):
a. The size of the applicant alone (without affiliates) must not exceed the size standard for the industry in which the applicant is primarily engaged and
b. The size of the applicant combined with its affiliates must not exceed the size standard designated for either the primary industry of the applicant alone or the primary industry of the applicant and its affiliates, whichever is higher. (For guidance on making the size determination, refer to 13 CFR §121.)
NOTE: Private non-profit organizations of any size are eligible.
Page 84 SOP 50 30 8
**E. Ineligible Uses of Loan Proceeds. EIDL proceeds may not be used for: **
Payment of any dividends or bonuses
Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to performance of services for the benefit of the applicant
Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster and non-repayment 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 licensed under the Small Business Investment Act. Federal Deposit Insurance Corporation (FDIC) is not considered a Federal agency for this purpose
Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations.
a. If a direct Federal debt is delinquent, your recommendation must be based on independent documentation from the appropriate Federal agency explaining how the delinquency will be cured.
b. If a direct Federal debt is delinquent because of the disaster, we should make arrangements with that Federal creditor to have payments deferred or a similar action taken to bring the delinquency current prior to approval of an EIDL. If the Federal creditor cannot or will not cooperate, the likely result will be a decline of the EIDL request. However, if the applicant has other resources or recoveries, we should generally allow (and perhaps require) those resources to be applied first to ineligible needs, such as the payment of direct Federal debt.
c. When processing during the injury period, it is generally appropriate for you to negotiate with Federal creditors to defer payments (or take similar action) until the end of the injury period. You must document why this was or was not imposed.
Contractor malfeasance and
UNIT NOTE: This ends the unit for version 7 SBA SOP on processing. As changes are made I'll update, but if you focus on the last 10 items from page 84 you will learn what NOT to spend the money on. It's not a matter of "Oops, sorry." it's the fact the SBA can ask for your full loan be repaid in a 30 day period if you violate the terms of the loan.
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