EIDL Loan:  What Can You Use it For?

EIDL Loan: What Can You Use it For?

hey everybody this is same Kwak here one
of the Kwak Brothers hope you had an amazing Memorial Day weekend and I've been
getting a lot of questions lately and that is Sam what can I use the SBA EIDL
or money for can I use it for paying off my mortgage can I buy a new truck for my
business can I pay myself a bonus or can I go and buy a rental property so with
that being said let's go and break down the do's and don'ts with the sba EIDL
loan and what you can cannot use the money for welcome back everybody this is
Sam Kwok here once again so let's go break down the do's and don'ts with the
SBA EIDL loan and some of you guys may know i've been approved for one hundred
twenty thousand dollars with the eidL loan but i declined it and did not sign
the loan document in fact i probably never will and if you wonder why go and
check out my last video which i broke down the contract for the EIDL loan and
why i chose to walk away from it as always before we get into the video be
sure to subscribe to a channel if you want more updates information about the
sba loan programs stimulus programs as well as learning how to invest in real
estate okay so first let's go and break down
what can you use the EIDL Loan money for right what are the do's of the EIDL
money so first of all you can use it for business operating expense so the
language that the contract says is working capital so what is working
capital according to SBA definition well working capital is any expenses incurred
while you're producing income so this is rent for your office maybe a mortgage
payment for your commercial real estate that you bought right like in a
warehouse or an office space payroll right paying your employees which is
probably gonna be a big expense for your business if you have any employees you
can also pay for virtual assistants so here in our business we use offshore
virtual assistants to help us edit videos also create software programs to
which obviously is required to keep the business going also with the sba eid
alone you can also use it to pay your independent contractors so if you're a
landlord watching this you can use this money to pay your property manager you
can pay for any cleaning services that were required for your rental property
but you cannot use this to repair any physical damage for your properties and
trust me guys I'm not the making new rules here so if you're a
landlord and you're wanting to use the spae ideal money for physical repairs
unfortunately that does not qualify as working capital or working operating
expenses for your business such as utilities or if you have an assistant
that helps you run your property management you can pay them using the
sba CIDR but not physical damage repairs the next big item that you can use the
sba EIDL loan money for is accounts payable so this also includes any net 30
accounts or if you're invoiced and you were expected to pay within 30 days you
can use the sba EIDL loan money to pay for some of those items and bills that
are coming to you with your business and as mentioned earlier you can also use
the sba EIDL loan money to cover in a utility payment for your office space
warehouse or place of your business if you run a brick-and-mortar store or a
retail space now one quick note about the rent and mortgage payment part you
cannot use the spae idea a little money for any advanced payments or early
mortgage payoff so you can only use it for immediate payments that are coming
due for your mortgage and your rent so from my audience that wants to pay off
your mortgage faster sorry you can't use the sba EIDL loan money for any advanced
or early payments on your mortgage same thing goes for your rent you cannot do
any advance rent payments you have to pay them as they are coming due and also
you can use some money to you know smash the like button for the YouTube
algorithm that helps us a lot right we want to get this video out to as many
people as possible so they understand what are the do's and
don'ts with the SBA EIDL loan so to kind of summarize what you can use the SBA
EIDL alone the rule of thumb is basically use it for working capital or any
immediate operating expenses that also includes credit card payments so if you
bought something for your business or you've been doing your normal operating
expenses on a credit card just like my business then you can use the SBA EIDL
loan money to pay for those credit cards as most credit cards are not considered
long-term debt okay now let's go into the list of what you cannot use the SBA
EIDL loan money for here are the dome so first you cannot use the SBA EIDL little
money for distribution see the owners any dividend payments loaning money to
yourself or loaning money to other businesses this is to close any possible
loops where you can go and use this money for your own personal gain right
to go buy yourself a Lamborghini or to go buy
yourself a Porsche right you can't do that with the SBA EIDL Loan so no
distribution of dividends the owners you cannot pay yourself however you can't
pay yourself if you are on the payroll of the business so if you get a w-2 you
from your own business right if you're a corporation you can pay yourself payroll
using the SBA EIDL alone but again you cannot do any advance payments right
early payroll payments you can't do any of that it has to be on a regular
payroll schedule number two you cannot use the SBA EIDL alone for any expansion
of your business so know you can't go and buy another office space or no you
can't you know use it to go and pay for a new lease right it has to strictly be
for working capital and operating expenses now keep in mind guys what is
the title of this loan economic injury disaster loan right this loan was
designed to help you the business to stay afloat
during harsh and challenging times it's not meant for you to go and buy a new
car right or to go and you know expand or franchise anew aside and you can't do
that right it has to be strictly for operating and keeping afloat with your
existing business the next thing as I mentioned earlier you cannot use this to
pay off your mortgage early again that's something that I thought of when I
nearly got proved but upon researching and reading about the EIDL loan we
wouldn't be able to go and pay off our mortgage early even if it's for
commercial purposes so unfortunate can't do that number four this is for my
landlords listening you cannot buy a new property sorry I know the interest rates
really low 3.75 at a third of your face unsecured I mean it sounds like an
amazing dream right for for a loan but no you cannot use this to go and buy a
new rental property nor can you buy it for fix and flips either so for my fixed
and flippers listening so nope you cannot use the EIDL Loan money for those
types of purposes and last but not least number five you cannot use this a ideal
loan money for buying a new car or buying a new truck even if you have a
trucking business right if it's a fixed asset you cannot use the EIDL loan money
for those types of purpose now I did get a question from one of my members in our
Facebook group which by the way you should definitely join if you haven't
already but this member pretty much asked a
question where could I go and use the EIDL Loan money for you know covering
payroll cause my working capital and then allocating the money that bid is
spent for to going by properties can I still do that now again I'm not a CPA
I'm not an attorney right this is not a legal or tax advice or anything like
that but I believe the key here is proper record-keeping right as long as
you document where the money is going how the money is being transferred how
the money it has been spent that is gonna be the crux for everything when it
comes to the auditing portion of the EIDL alone which I'll cover in just one
second one of my good CPA friend also mentioned creating a separate business
account just for the EIDL Loan so that you're not commingling the EIDL loan
fund with the other revenue that you've generated from the actual activity in
your business so that way you can properly document your EIDL loan
transactions where the money is going how the money has been spent that way
when there comes a time where you get audited you have the proper documents to
show hey I spent my money here and there which are all propria and qualifying
expenses under the EIDL agreement now of course with that being said
everyone's asking well how would the SBA know if I spent the money on the right
places or how would they know if I squandered the money buying a new
Ferrari or how they know if I spent the money to smash the like button for the
YouTube algorithm right so how they know well according to the loan agreement the
SBA does require a strict bookkeeping record-keeping also maintaining a ledger
of receipts invoices pretty much all records of how you spent the money for
the SBA Eid alone also the SBA has a right to audit your
books and your records and you're the one that has to pay for the CPA to come
and audit your business furniture report that's gonna be turned in to the SBA so
that the SBA knows that you've been spending the money on qualifying
expenses and purchases not on buying a new car or buying a new rental property
and for my rebellious people watching this you guys might be wondering well
what is SB gonna do about that right what if I do go and spend the money I'm
buying a rental property what can s be a do well according to the loan agreement
the SV can come and find you up 200 to 150 percent of the principle loan amount
that you borrowed under the sba eid loan program so if you borrowed $100,000
under the sba II ideal program the SBA can find you up to $150,000 if they
that you didn't use the money for the proper and qualifying expenses and also
if the SBA deem that you've lied or you misrepresented your business or you
cheated on the application they can obviously come and see you and try to
collect any civil damages or fines from your business and also keep in mind if
you borrow more than $25,000 the SBA has collateral security interest over your
business so they can come and take whatever you want
in case you default on the loan and what is this the agreement also says that
they can find you for not smashing the like button on this video I'm just
kidding about that but hey we definitely go and smash the like button for the
YouTube algorithm but in seriousness guys don't break the rules and you
definitely don't want to violate any of the terms under the sba EIDL loan program
now those are some of the do's and don'ts the Kanaka not so if I find any
new rule or if I find a new section in the loan agreement that I haven't
covered I'll make sure I make a follow-up video to make sure that you
guys are being informed again I'm not a CPA I'm not an attorney I'm just a guy
on the real estate investor giving you my interpretation of the sba ii ideal
loan agreement so make sure you guys do your own research for your business and
for your own situation so there you have it guys hope this video was very helpful
when it comes to the breakdown of can and cannot the do's and don'ts with the
e I do alone if you guys have any questions leave them down below and if
you guys enjoy this video be sure to subscribe to your channel if you want
more videos of breakdowns on sba e ideal programs any stimulus programs real
estate market updates as well as investing in real estate be sure to also
hit the bell notification icon so you get notified as soon as release a video
and check out some of the other videos we have about real estate investing

can i pay myself

As found on YouTube

Looking to see what kind of mortgage you can get? Click here to see

Leave a reply

Your email address will not be published. Required fields are marked *