Economic Injury Disaster Loan (EIDL) Accounting & Bookkeeping Requirements
Prior to accepting any loan, including the Economic Injury Disaster Loan (EIDL), savvy business owners consider what short and long-term commitments they are making to meet the loan and EIDL accounting requirements. Business owners will be best protected by engaging with their professional accountant early on to ensure they have got the proper receipts, records, and utilization of funds. It is always best to know the loan requirements upfront to avoid scrambling for answers when the lender inevitably comes asking questions.
EIDL is Available
On June 15th, the Small Business Administration (SBA) announced that it reopened to allow all small businesses to apply for the EIDL. There is a cap on how much the SBA can loan out, so we recommend applying for this loan ASAP! EIDL Loan Application Link
EIDL Accounting Requirements for Use of Loan Proceeds & Receipts
By accepting the EIDL loan, the small business owner, “borrower”, must be aware of the following requirements for use of loan proceeds & receipts:
- 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.
- Borrower will not use, directly or indirectly, any portion of the proceeds of this Loan to relocate without the prior written permission of SBA. To request SBA’s prior written permission to relocate, Borrower will present to SBA the reasons and a description or address of the relocation site. Determinations of (1) whether relocation is voluntary or otherwise, and (2) whether any site other than the disaster-affected location is within the business area in which the disaster occurred, will be made solely by SBA.
- Borrower will, to the extent feasible, purchase only American-made equipment and products with the proceeds of this Loan.
- Borrower will make any request for a loan increase for additional disaster-related damages as soon as possible after the need for a loan increase is discovered. The SBA will not consider a request for a loan increase received more than two (2) years from the date of loan approval unless there are extraordinary and unforeseeable circumstances beyond the control of the borrower.
Books & Records for EIDL Accounting Requirements
The small business owner, “borrower”, must be aware of the following EIDL accounting requirements for books and records:
- Borrower will maintain current and proper books of account for the most recent 5 years until 3 years after the date of maturity, including extensions, or the date this Loan is paid in full, whichever occurs first.
- Books will include Borrower’s financial and operating statements, insurance policies, tax returns and related filings, records of earnings distributed and dividends paid and records of compensation to officers, directors, holders of 10% or more of Borrower’s capital stock, members, partners, and proprietors.
- Borrower authorizes SBA, at Borrower’s expense, to (1) inspect and audit any books, records, and paper relating to the Borrower’s financial or business conditions, and (2) inspect and appraise any of the Borrower’s assets.
- Borrower will furnish their financial statements to SBA, not later than 3 months following the expiration of Borrower’s fiscal year.
- Upon written request of SBA, Borrower will accompany such statements with an ‘Accountant’s Review Report’ prepared by an independent public accountant at Borrower’s expense.
- Borrower authorizes all Federal, State, and municipal authorities to furnish reports of examination, records, and other information relating to the conditions and affairs of Borrower and any desired information from such reports, returns, files, and records.
Limits on Distribution of Assets
By accepting the EIDL loan, the small business owner, “Borrower”, agrees that they will not, without the prior written consent of SBA, make any distribution of assets, or give any preferential treatment, make any advance, directly or indirectly, by way of loan, gift, bonus, or otherwise, to any owner or partner or any of its employees, or to any company directly or indirectly controlling or affiliated with or controlled by Borrower, or any other company.
Equal Opportunity Poster Requirement
By accepting the EIDL loan, the small business owner, “Borrower”, must be aware that if they have or intend to have employees, they must post SBA Form 722, Equal Opportunity Poster, in their place of business where it will be clearly visible to employees, applicants for employment, and the general public.
Legal Requirements for Funds & Statements
Whoever wrongfully misapplies the proceeds of an SBA disaster loan shall be civilly liable in an amount equal to one-and-one-half times the original principal amount of the loan.
Any false statement or misrepresentation to SBA may result in criminal, civil, or administrative sanctions including, but not limited to:
- fines, imprisonment or both, under any applicable laws;
- treble damages and civil penalties under the False Claims Act;
- double damages and civil penalties under the Program Fraud Civil Remedies Act; and
- suspension and/or debarment from all Federal procurement and non-procurement transactions.
Statutory fines may increase if amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.
Use PROs to Keep Your Accounts & Business Nimble
Change is constant. Our PROs can help you calculate and evaluate your options and track changes to determine what makes most financial sense in the short and long-term. We stay on top of changes to loans, grants, policies, and industry-leading procedures to ensure business owners are protected and making smart financial decisions. Schedule time with our PROs.