The EIDL, or Economic Injury Disaster Loan, which is separate from the Paycheck Protection Program, is the pandemic relief effort that provides loans with a 3.75% interest rate and 30 year repayment term. Sometimes these EIDL come with up to $10,000 in grant money that does not need to be repaid. This all sounds great, right? Not so fast hotshot, there are, unfortunately, many terms that are restrictive and unexpected within the EIDL paperwork we have been reviewing. We’re doing our best to summarize those concerns and limitations you should be aware of below.

• Repayment will begin one year from the date of you promissory note, and will be monthly payments;
• When above the $25k threshold (meaning more compliance and requirements), it is a secured loan in the collateral/assets of your business. In other words, literally everything of value (tangible assets, digital assets, branding, contracts, and software) is secured by this loan and as a result, you cannot sell, gift, or dispose of any of the company assets while you are repaying this loan / until this loan is paid off. However, you can seek approval from the SBA to do so.
• Also, you cannot take out any loans superior to this one in repayment position and secure any other loans with the same collateral – effectively, you cannot take out any additional debt, especially if it requires security in a 1st position on any assets of your business;
• You cannot relocate while you’re paying back the loan because they consider it a relocation outside of the hazard zone apparently, but you can request permission to relocate;
• You have to make a good faith effort to only spend the money with American companies and on American made goods;
• If your business also receives any funds from (1) proceeds of policies of insurance or other indemnifications, (2) grants or other reimbursement (including loans) from government agencies or private organizations, (3) claims for civil liability against other individuals, organizations or governmental entities, and (4) salvage (including any sale or re-use) of items of damaged property – you actually have to remit those funds to the SBA and the SBA is in charge of deciding whether you can actually receive and use those funds and if it makes you ineligible to receive/use the EIDL funds;
• If you’re above the $25k, you most likely personally guaranteed the loan, as well, which means that if your business defaults (which is above and beyond just non-payment, due to the limitations on this loan and many ways to default listed below), you could be personally liable for civil and criminal penalties;
• Highly, highly recommend you keep the funds from this loan in a separate bank account from all other company money and keep very meticulous records on how it is used, just in case they ever audit and be sure to only use it on expenditures in the normal course of business that are not owner compensation payments/bonuses/gifts.
• Keep these records for literally forever and this includes itemized receipts for all expenditures and any contracts signed where money will be paid/is paid;
• If you are above the $25k threshold, you are, unfortunately, required to obtain (within the 12 months after you signed this paperwork) and maintain hazard insurance moving forward;
• High level outline of how you can default on an EIDL: failing to pay/breaching any terms here or in the paperwork, defaulting on ANY OTHER SBA LOAN, selling or transferring any of the business collateral (assets) not to the SBA’s satisfaction, misrepresenting anything to the SBA or failing to update them on your status, failing to pay ANY OTHER LOAN if the SBA thinks it will cause issues for the EIDL, failing to pay ANY TAXES when due, involvement in any type of bankruptcy or reorganization, any adverse change to your business that hurts your ability to repay the loan, literally IF YOU DIE you are in default, reorganizing, merging, consolidating, or otherwise changing ownership or business structure without SBA’s prior written consent.
• If you do default, they can take over your business assets and sell them off, in addition to coming after you for the amount owed and/or civil and criminal penalties;
• May not be relevant to you, but no lobbying activities using the funds or through your business after receipt of these funds.