EIDL Loan use question

[iron190]

Hi Everyone,

Our restaurant LLC just received the EIDL loan money. 3.75% interest. 30 year maturity date. Payments deferred for 12 months. On the SBA EIDL agreement, the section states you can use the loan proceeds for:

"Borrower will use all the proceeds of this Loan solely as working capital to alleviate economic injury caused by disaster occurring in the month of January 31, 2020 and continuing thereafter and to pay Uniform Commercial Code (UCC) lien filing fees and a third-party UCC handling charge of $100 which will be deducted from the Loan amount stated above."

This is vague. I would like to use the money to pay down the principal of a commercial bank loan the LLC has. It would really help the business if this was possible.

Does anyone know if this would be allowed or not?

Thank you.

 

[kirby]

Not vague. Reads that money has to be used with respect to the events of 1/31/20 and thereafter.
If you use it for that loan if loan was there before 1/31/20 then that will be a problem for you.

 

[iron190]

So if I was paying rent before 1/31, that means I couldn't use it for that either? Seems very limiting, especially since I got PPP and had to use majority of that for payroll.

 

[kirby]

No, I was trying to specifically be talking about using the EIDL for the pre-existing loan debt, but I was unclear.
Here is guidance from Investopedia
I bolded and underlined the refinance debt section that I was talking about
But as you can see - using for rent is permitted.

EIDL advance: permitted uses
Your EIDL advance will not have to be repaid provided that you use 100% of the money for:

• Paid leave
• Maintaining payroll
• Increased costs of materials
• Mortgage, lease, or rent payments
• Other obligations that can't be met due to revenue loss

EIDL advance: non-permitted uses
You may not use your EIDL advance (or loan) for:

• Replacing lost sales or profits
• Business expansion
• Refinancing long-term debt

Consequences of EIDL non-permitted use: If you use all or part of your advance (or loan) for non-permitted uses, it will not be forgiven and may be subject to immediate payback.

Since the EIDL loan and loan advance are considered disaster funds, if the SBA determines you misused the funds, the penalty could be immediate repayment of one-and-a-half times the original loan amount, plus possible criminal charges.8