If your pharmacy was approved for an Economic Injury Disaster Loan (EIDL) through the Small Business Administration, what’s next? As funds are dispersed, pharmacies must carefully manage and document use of these funds to remain in compliance with the loan terms.
Eligible uses of EIDL funds, for normal “ongoing operations” include:
- Payroll UNLESS you also have a PPP loan
Ineligible Expenses include:
- Loan or Line of Credit payoff
If your pharmacy also received a Paycheck Protection Program (PPP) loan, the accounting management and reporting can be even more complex.
In this video, Scotty Sykes, CPA, CFP® provides an update on managing EIDL funds in your pharmacy, including what they should not be used for and why documentation is so important due to the 30-year term of this loan.
If you have further questions about cash flow in your pharmacy or managing your accounting and tax situation based on CARES Act provisions, contact us.
If you prefer to read this content, the video transcript is below.
What is typical EIDL funding for pharmacies?
We are seeing quite a few pharmacies start to receive EIDL funds. Back in March, April when they applied, the SBA system completely was shut down due to the demand and the older system that they have there. So we are just now starting to see pharmacies getting funds. The max is generally going be around $150,000. That is the number most folks are seeing, in addition to that $10,000 advance that they received when they applied. Most have already gotten that as well. It was $10,000 and then they switched it to $1,000 per employee up to $10,000. So you may have gotten anywhere from $10,000 to $1,000 or so.
What are EIDL eligible expenses?
It is very important to use the EIDL funds for the applicable expenses. The applicable expenses would be any normal operating expenses you had prior to COVID-19. So, dues, payables, inventory, payroll. You cannot do bonuses, though, but you can do payroll. If you do have the PPP program, you absolutely do not want to do payroll because you are using PPP for payroll, so keep that in mind. But, those normal operating expenses, if you are faced with an expense and you are not sure, ask yourself is this a normal operating expense that I have had and that I typically pay? If not, it is probably not an EIDL eligible expense. You cannot do repairs, you cannot pay expansion or pay off any line of credit or any debt or anything like that with these EIDL funds. It is only for those normal operating expenses and overhead, etc. So you just have to be very careful with the use of these funds for compliance purposes.
What are the loan terms?
Like the PPP, if you use those monies for eligible expenses, you can apply for forgiveness. With the EIDL, this is not a forgivable loan. You will be paying it back at the 30, up to 30 years, at 3.75% interest rate. So it has pretty favorable terms, actually very favorable terms. There is no personal guarantee, they just take a blanket lien on assets. It is very favorable from that respect.
How should pharmacies manage this relief funding?
The advances of a tax-free grant you do not have to pay that back. But it will come off if you got the PPP, whatever your forgiveness amount is on your PPP, that advance comes off of that. So you will have to pay back some of your PPP as a result of the advance. It does come into play with the PPP loan forgiveness.