Distributions of assets after acceptance of the EIDL loan.
- Yechiel Roth CPA, CFP, PFS
- Jun 12, 2020
- 1 min read
Many companies are getting on their EIDL closing documents from the SBA, a clause that says the following “Borrower will not, without the prior written consent of SBA, make any distribution of Borrower’s 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.”
A strict interpretation of this clause would seem to disallow owners to take distributions or give bonuses for 30 years! Most small businesses operate as S-corp's or LLC's and the owners live off the distributions from their company.
Another interpretation, which was probably what was intended, is that distributions that would compromise the working capital and collateral of the company isn't allowed.
Hopefully the SBA would clarify this.
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