The COVID-19 pandemic has wreaked havoc on all businesses, both big and small. Every commercial enterprise is struggling to meet operating expenses with little or no income coming in.
Here’s a grim situation affecting the economy as a whole. To help businesses sustain during the pandemic, the Small Business Administration launched the EIDL program in 2020.
The EIDL is a long-term, low-interest loan for small businesses, self-employed individuals, contractors, non-profits, and agricultural businesses impacted by the pandemic.
The EIDL loan is provided to cover the working capital or normal operating expenses of a business.
However, there are still many doubts in the minds of borrowers. One of the frequently asked questions is whether we can use EIDL funds to pay credit card debts.
Further, in the article, we will clarify this doubt and outline the situations in which businesses can use EIDL to pay credit card outstanding.
So let’s dive right in.
What The EIDL Can Be Used For:
EIDL is a loan to fund the day-to-day operations of a business. This loan amount covers expenses like:
- Employees’ salaries
- Repairs and replacements of operating equipment
- Fixed debt payments
- Inventory replacement expenses
In a nutshell, it includes any expense that is necessary to keep a business running.
What the EIDL Can’t Be Used For:
SBA places certain restrictions on the use of the EIDL amount. You cannot use the EIDL for:
- Buying capital assets
- Payment of old debt
- Payments to stockholders or owners
- Refinancing a long-term debt
- Payment of loans from federal agencies, like the SBA
The EIDL cannot be used for expenses to grow a business or expand it.
Can A Borrower Pay A Credit Card Debt With EIDL?
The answer to this question is not straightforward. As already mentioned, SBA provides EIDL for meeting working capital essential to run a business. However, it disallows expenses for business expansion or payment or refinancing of old debts.
Going by this yardstick, a business can use EIDL to pay charges on a credit card for the operating business expenses. However, this credit card debt should not have been incurred before the pandemic.
Another problem is that small business owners make personal and business-related payments with the same credit card. So it is quite a task separating the two expenses.
However, if a business owner exclusively uses his personal credit card to pay for business expenses, EIDL can be used to pay this debt.
Keeping your accounts and bookkeeping up-to-date will go a long way in giving clarity about your business expenses. Also, consulting a professional CPA is a perfect idea to help you get the maximum set off of eligible business expenses.
The EIDL is a good financing option for businesses impacted by the pandemic. Make use of this fund to sustain your operations.
A good CPA can help you plan your expenses and maintain your accounts to get the maximum benefit from EIDL.
If you need any assistance regarding EIDL, do reach out to the FinAccurate Team.
If you would like to watch the video of this article, click on the link below:- Is It Possible To Use EIDL Funds To Pay Off Credit Card Debts?Other Accounting Related Information