How to Spend Your EIDL Loan: A Complete Guide for Small Business Owners

The check has cleared, the funds are sitting in your business account, and now comes the question every EIDL borrower faces: what exactly can you spend this money on?

Economic Injury Disaster Loans (EIDL) from the Small Business Administration offer a financial lifeline when disaster strikes—whether it's a hurricane, wildfire, or economic crisis. But unlike some relief programs, EIDL comes with strict rules about how you can use the funds. Misuse can result in penalties up to 1.5 times your loan amount, turning a $100,000 loan into a $150,000 problem.

This guide breaks down exactly what you can and cannot do with your EIDL funds, plus practical strategies to stay compliant and make every dollar count.

What Is an EIDL Loan?

The Economic Injury Disaster Loan is a federal assistance program managed by the SBA, designed to provide low-interest loans to businesses and nonprofits experiencing substantial economic injury due to declared disasters. Unlike grants or forgivable loans, EIDL must be repaid in full.

Key Loan Terms

• Maximum loan amount: Up to $2 million
• Interest rates: 3.75% for small businesses, 2.75% for nonprofits
• Repayment terms: Up to 30 years
• Payment deferment: First 12 months (was 30 months for COVID-19 EIDL loans)
• Collateral: Required for loans over $25,000

The long repayment terms and low interest rates make EIDL one of the most affordable financing options available to small businesses facing economic hardship.

What You CAN Spend EIDL Funds On

EIDL is designed to cover working capital and normal operating expenses that your business cannot pay due to the disaster's economic impact. Here's what qualifies:

Day-to-Day Operating Expenses

The bread and butter of EIDL-approved spending includes:

• Payroll costs: Salaries, wages, and benefits for employees
• Rent and mortgage payments: Your business location costs
• Utilities: Electricity, gas, water, internet, and phone services
• Insurance premiums: Business insurance payments
• Inventory purchases: Restocking goods for sale
• Office supplies and equipment: Necessary items to keep operations running

Fixed Debts and Financial Obligations

EIDL funds can cover your regular business debts:

• Loan payments: Existing business loan obligations on their scheduled payment dates
• Credit card payments: Monthly minimum or regular payments on business credit
• Commercial debt: Other financial obligations that existed before the disaster
• Accounts payable: Money owed to vendors and suppliers

Professional Services

You can also use EIDL for essential business services:

• Bookkeeping and accounting services: Keeping your financial records in order
• Legal fees: Business-related legal expenses
• Software subscriptions: Tools necessary for operations
• Web hosting and technology costs: Digital infrastructure

Expanded Uses (Post-2021)

The SBA expanded eligible uses in September 2021:

• Fixed asset acquisition: Purchasing equipment needed for operations
• Facility expansion: Growing your physical business space
• Refinancing certain business debt: Paying off some existing obligations

What You CANNOT Spend EIDL Funds On

Understanding prohibited uses is just as important as knowing approved expenses. The SBA specifically forbids using EIDL for:

Owner Distributions and Personal Expenses

• Dividends to shareholders: No distributing profits to owners
• Bonuses: With limited exceptions for performance-based compensation
• Personal purchases: Vacations, personal vehicles, or non-business expenses
• Owner draws beyond reasonable compensation: Taking excess money out of the business

Physical Damage Repairs

Counterintuitively, EIDL cannot be used for:

• Repairing physical damage from the disaster: That's what Business Physical Disaster Loans are for
• Replacing damaged equipment or property: Unless it's economic injury, not physical damage
• Relocation expenses: Moving your business to a new location

Investment and Expansion Activities

• Expanding facilities beyond working capital needs: Aggressive growth plans
• Purchasing new fixed assets (unless directly related to maintaining operations)
• Starting new business ventures: EIDL is for existing business operations

Other Prohibited Uses

• Paying back loans to stockholders or principals: No repaying yourself
• Refinancing personal debt: Business debt only
• Expenses already covered by other relief programs: Such as PPP-covered costs during the forgiveness period

EIDL and PPP: Understanding the Coordination Rules

If your business received both EIDL and Paycheck Protection Program (PPP) funds, you must keep them separate:

The rule: EIDL cannot be used for the same expenses covered by PPP during the 8 to 24 week forgiveness period.

After PPP funds are exhausted: EIDL can then cover payroll, rent, mortgage interest, and utilities—the same categories PPP covered.

Best practice: Exhaust your PPP funds first for forgiveness-eligible expenses, then use EIDL for ongoing operational costs.

How to Track Your EIDL Spending: Best Practices

Proper documentation isn't optional—it's essential. The SBA has the right to review your financials at any time to ensure compliance.

Open a Dedicated Bank Account

The single best step you can take:

• Open a separate business checking account exclusively for EIDL funds
• Transfer your EIDL deposit to this account
• Make all EIDL-related payments from this account only
• Keep the account active until the loan is fully repaid

This creates an automatic paper trail that clearly shows where every dollar went.

Maintain Detailed Records

For every expense paid with EIDL funds, keep:

• Invoices and receipts: Proof of what was purchased
• Bank statements: Showing the transactions
• Payroll records: If using funds for wages
• Contracts and agreements: For rent, services, etc.
• Dated documentation: When expenses occurred relative to the disaster

Record Retention Requirements

The SBA requires you to maintain current and proper records for:

• The most recent five years of operation
• Until three years after loan maturity, OR
• Three years after the loan is paid in full

Whichever period is longer—plan to keep these records for decades.

Consider Using Accounting Software

Modern accounting tools can help you:

• Tag EIDL-related transactions
• Generate reports showing fund usage
• Maintain organized digital records
• Prepare for potential audits

Common EIDL Mistakes to Avoid

Learning from others' errors can save you significant headaches:

Mistake #1: Commingling Funds

Mixing EIDL money with regular business funds makes tracking nearly impossible and raises red flags during audits.

Solution: Dedicated bank account, always.

Mistake #2: Using Funds for Prohibited Purposes

Even well-intentioned misuse can trigger penalties. Some business owners don't realize personal expenses or owner distributions are prohibited.

Solution: When in doubt, check the SBA guidelines before spending.

Mistake #3: Poor Documentation

You spent the money correctly, but you can't prove it years later when the SBA asks.

Solution: Document everything in real-time, not retroactively.

Mistake #4: Forgetting It's a Loan

Unlike PPP, EIDL is not forgivable. Some businesses spend freely without planning for repayment.

Solution: Build loan payments into your long-term financial plan from day one.

Mistake #5: Application Errors

Mistakes on your original application—like incorrect employee counts or payroll figures—can trigger audits later.

Solution: Review your application for accuracy. If you find errors, contact SBA customer service promptly to correct them.

Preparing for Potential SBA Audits

The SBA conducts reviews of EIDL loans, particularly focusing on:

• Whether funds were used for eligible purposes
• Consistency between application claims and actual financial records
• Businesses that showed rapid recovery after claiming severe losses

Audit Red Flags

SBA investigators may look more closely at businesses that:

• Reported higher employee counts or payroll to obtain larger loans
• Claimed severe losses but rebounded quickly
• Show discrepancies between reported losses and subsequent tax filings
• Closed shortly after receiving funds

Your Best Defense

• Maintain organized, complete financial records
• Ensure your EIDL spending aligns with stated purposes
• Keep your dedicated EIDL account reconciled
• Retain all documentation for the required period
• Consider working with a professional accountant

EIDL Repayment: Planning for the Long Term

With loan terms up to 30 years, EIDL becomes a long-term financial obligation. Here's how to manage it effectively:

Understand Your Payment Schedule

• Payments typically begin 12 months after disbursement
• Interest continues to accrue during deferment for COVID-19 EIDL loans
• Monthly payments are calculated based on your loan amount, interest rate, and term length

Build Payments into Your Budget

• Calculate your monthly payment amount
• Include it as a fixed expense in your financial projections
• Set up automatic payments to avoid missed payments
• Consider paying more than the minimum when cash flow allows

Hardship Options

If you're struggling to make payments, the SBA has historically offered accommodation programs. While the EIDL Hardship Accommodation Plan ended in March 2025, contact the SBA directly if you're facing difficulties—options may be available.

Keep Your Finances Organized from Day One

Managing an EIDL loan—or any business financing—requires consistent, accurate financial tracking. The dedicated bank account approach isn't just good for compliance; it's a model for how every business should organize its finances.

Clear financial records help you make better decisions, prepare for tax season, and demonstrate credibility to future lenders. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data—no black boxes, no vendor lock-in. Whether you're tracking EIDL funds or managing day-to-day operations, having reliable financial visibility matters. Get started for free and see why professionals are switching to plain-text accounting.

Key Takeaways

1. EIDL funds are for working capital and operating expenses—not expansion, personal use, or physical damage repairs.

2. Open a dedicated bank account for EIDL funds immediately. This single step makes compliance dramatically easier.

3. Document everything and retain records for at least three years after loan maturity or payoff.

4. EIDL is not forgivable—plan for repayment from the start.

5. Avoid commingling funds with regular business accounts or PPP-covered expenses.

6. When in doubt, don't spend—verify with SBA guidelines first. Penalties can exceed the loan amount itself.

The key to successfully managing your EIDL loan is treating it as both an opportunity and a responsibility. Used correctly, these funds can bridge your business through difficult times. Used incorrectly, they can create problems far worse than the disaster itself. Stay organized, stay compliant, and keep your business moving forward.