Dollars & Sense
Federal Coronavirus Relief Funds Still Available for Expediters
If you’re an expedite owner-operator, contract driver, or fleet owner, and you’re experiencing a cash crunch from the impact of COVID-19 on your business, it’s not too late to apply for the Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law in late March.
But the funds could run out at any time.
So, if you think you might qualify for the EIDL, you’ll want to apply as soon as possible while there’s still money.
In the meantime, here are the key points to consider as you evaluate whether the EIDL is right for your business.
The EIDL is available for small businesses, independent contractors, gig workers, nonprofits and agricultural businesses that have been in business since before January 31, 2020.
What are the Terms?
- The loan amount depends on your business and what the SBA determines is appropriate. Loans are currently capped at $150,000.
- The interest rate is 3.75% (2.75% for nonprofit organizations).
- The loan is repayable over 30 years, which makes the payments manageable. (For example, the monthly payments for a $24,000 loan is $117 per month.)
- The first payment is deferred for 12 months from the “effective date” of the promissory note. But interest will still accrue during those initial 12 months.
- The loan can be paid off at any time without penalty.
- Loans over $25,000 may require collateral.
But what exactly does the SBA consider as collateral?
According to the loan contract: “The Collateral includes the following property that Borrower now owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security interest Borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the Collateral, all products, proceeds and collections thereof and all records and data relating thereto.”
The bottom line: Before accepting a loan amount above $25,000, consult your legal counsel to clarify the potential impact of the SBA’s collateral claims on your business.
7. Unlike the Paycheck Protection Program (PPP) loans, the EIDL loans are NOT forgivable. You will need to pay back the EIDL funds.
What Expenses Can You Use EIDL Funds For?
EIDL loans can be used for:
- Working capital to continue operations—such as truck payments, maintenance, fuel, etc.
- Necessary expenditures to alleviate the specific economic injury suffered from COVID-19
- Sick leave to employees unable to work due to the direct effects of COVID-19
- Maintaining payroll—including your salary
- Increased supply costs
- Rent or mortgage payments (for the business)
- Repaying debt that cannot be otherwise repaid due to revenue losses.
What Expenses Are Improper Use of EIDL Funds?
You cannot use the EIDL loan to pay these expenses:
- Dividends and bonuses
- Disbursements to owners, unless for the performance of services
- Repayment of stockholder/principal loans (with exceptions)
- 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
- Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations
What Records Do You Need to Keep for Use of EIDL Funds?
According to the contract: “Borrower will obtain and itemize receipts (paid receipts, paid invoices or canceled checks) and contracts for all Loan funds spent and retain these receipts for 3 years from the date of the final disbursement. Prior to each subsequent disbursement (if any) and whenever requested by SBA, Borrower will submit to SBA such itemization together with copies of the receipts.”
In other words, if you’re going to accept the funds, plan on keeping precise records for how you use the money.
How Can You Apply?
The EIDL application process is relatively easy and only takes about 15 minutes. To get started, go to https://covid19relief.sba.gov/#/.