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Spot Checks: No-Nos and Uh-Ohs of EIDL - SBA Spot Checks and Audits.

Updated: Feb 15, 2022

Tales from recent spot checks SBA performed on our clients.


By Thomas W. Tramaglini, BRP Onesta

info@BRPOnesta.com

www.backofficedepot.com


Recently, two of our clients’ EIDL applications for additional funding initiated a spot check by the SBA. The SBA reviewed how they used their EIDL proceeds. We take their experiences and use previous survey data from our clients to write this article underscoring the importance of using EIDL in compliance with code. Implications are provided at the end of this article.


SBA can and (actually) does check on how small business owners used proceeds


When the COVID-19 Pandemic hit, immediately small business owners began to seek relief. In several bills passed by Congress and signed into law by former President Trump and current President Biden, billions of dollars went to small business owners who needed help. According to the SBA, the Economic Injury Disaster Loan program disbursed over $88 Billion dollars through November 2021 through EIDL. There were also grants provided to small businesses under the same program guidelines.


With so much money being loaned out to small business owners, there are cases, albeit rare where the SBA will either spot check or audit how proceeds are used.


A Wide Range of How Small Business Owners Spent or Intend to Spend EIDL Proceeds


As helpful as some of those funds were to many small businesses, the allowable uses of small business loan funds were confusing to many. For instance, in our survey of small business owners, nearly 70% (69.7%) of small business owners identified that they were unclear at that start of the program of what funds were to be used for and then in a subsequent question, 46.2% of the business owners in the same survey said that they would like to receive expansion funds provided by SBA for expansion. Amidst the confusion shared by so many small business owners, small businesses owners are still responsible for using their funds adequately or face possible implications of misuse of funds as laid out in their SBA EIDL Notes.


Purpose of EIDL Proceeds and How Small Business Owners Used or Will Use EIDL


The SBA describes the EIDL program1 purpose: “The purpose of EIDL is to provide financial assistance for small businesses to meet financial obligations and operating expenses that could have been met had the disaster not occurred.” In our survey, small business owners said they used or would be using the EIDL funds for the following: