Summary: Many small businesses who are eligible for a COVID-EIDL loan from the SBA have avoided the program because of an aversion to taking on more debt. However, the program can be used to pay down existing debt and significantly improve cash flow.  The program closes 12/31/21.

COVID-EIDL Program Overview

The COVID-EIDL loan program, run by the Small Business Administration, is intended to help small businesses survive and recover from the economic impacts of the pandemic. Eligible businesses can receive up to $2m in the form of a loan with a 3.75% interest rate and 30 year repayment period.

Use of EIDL Funds

That money can be used in several ways, including to pay down commercial debt. Because of this, borrowers can use COVID EIDL funds to tackle credit card debt, existing loans, and mortgages.

Here's what the SBA cites in their FAQ as eligible uses of COVID-EIDL funds:

• Pay or pre-pay business non-federal debt incurred at any time (past or future), including monthly payments, payments of deferred interest;
• Pay regularly scheduled payments on federal debt;
• Payroll;
• Rent/mortgage;
• Utilities; and
• Other ordinary business expenses

Because you can pre-pay non-federal debt, you could use EIDL funds to pay off credit card debt or another higher interest loan. This could be a huge improvement on cash flow; EIDL loans have a 3.75% interest rate for small businesses and a loan term of 30 years, which means your monthly payments would likely be significantly lower.

Funds can be used towards federal debt as well (including existing SBA loans), but only for monthly payments; there's no pre-payment allowed on federal debt.

Learn more

To learn more on the COVID-EIDL program, including who's eligible, how to apply, loan terms, and more, visit the SBA's website here.

If you have questions about the EIDL program including how you could use funds to improve your small business cash flow, schedule an advising call or email us.