Good morning everybody. Today is Friday June 26th. Fun fact, June is almost over.
Today I'm going to be talking about 7 mistakes to avoid when you have
that EIDL loan, alright? But before we do that I would love it if you would
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Thank you so much. Alright, one first mistake you should avoid is not
accepting the EIDL loan at all just because of the scary language. Or you
know, the the contract terms, okay? If you need the money for your business to
survive definitely take it. It's more important you know, especially if
you're trying to stay alive. To keep your family alive. Keep your family fed, housed,
all that. If it's all dependent on your business, definitely take the loan. Don't
just decline it or ignore it because of the contract
terms. Now because the SBA says that they can you know, review your financial
statements or they can audit you or they have access to all your property or they
can liquidate it if they want to, it doesn't mean that they will.
You know, it just gives them the right to but it doesn't mean that they will. And
usually these things are more of a concern if you're getting close to defaulting or
you're missing payments, any of that stuff. Does that makes sense? This kind of thing
is normal for any loan. You know, it might not be as much but
with any loan you pretty much are entering a contract with the lender and
they pretty much have you by the neck until you pay it off. So these kinds of
terms, it's not super unfamiliar. Don't decline it just because the contract
sounds a little scary or overreaching. Two, do not co-mingle your funds. If you're
not familiar co-mingling means mixing your business and personal transactions
together. That means if you're paying for your personal expenses out of your
business checking account or vice versa paying your business expenses out of your
personal checking account. Do not do that. The only exception here is if you're a
sole proprietor, okay? Because if you're a sole proprietor, you most likely won't
have like a separate business checking account. But here I'm talking about
people who have LLC's, corporations, partnerships you must have a separate
checking account and you must keep your transactions separate. And this is
something that you should do outside of SBA loan scenarios. This is something
that you should do anyway, okay? Because if you co-mingle your funds it's going to
make it even that much more, that much more difficult for the SBA to
review your documents if they need to. And you know, it's just not legal. It
might seem more easy to do if you're a sole owner business, or if you're a single
member LLC, or sole shareholder in your S corporation. It might be easy to just you
know, oh I need some, I need an extra $1,000 this month, just take it
out of my business checking account. Or you know, if your business makes all the
money, it might be easier to just pay your
mortgage out of your business checking account before you transfer it to your
personal account. And that's just a huge no-no,
alright? Just treat it as though you were in a proper partnership because if you
were paying your personal mortgage out of your business checking account and
you're in a 50/50 partnership would your partner be okay with that?
That sounds like you know, that's definitely co-mingling. It could be
considered embezzling if you were doing that. So just treat it as if you were in
a partnership and you were held accountable by another partner, all right?
And again, do this even outside of any SBA situation or EIDL situation. It's
a good habit to do because if you were to get sued or anything like that, were
come under financial trouble. If you co-mingle your funds between your
business and personal you know, your corporate protection is dismissed. You
know how you get your LLC for "liability protection" well, if you co-mingle
all your funds, that goes away. So you are now personally liable for your
businesses transactions if you co-mingle. So definitely don't do that. Three, know
bookkeeping. Whether you have an SBA loan or not, you should have some level of
bookkeeping and it's just a given. If you don't have bookkeeping, it's going to be
harder for the SBA to review your books and your financial statements. You might
not even have financial statements if you don't have bookkeeping. And so
if they review, if they try to review your stuff and you can't properly
provide them all the documents, they might make you pay for an audit or
review from an accounting firm. And if you're not doing bookkeeping, that audit
is going to be a lot more costly to get through because you'll probably have to do the
bookkeeping anyway. Or they have to review your financial statements and
basically take statements from you and try to corroborate the two together. And
that's just going to get more costly. I definitely recommend hiring a
professional to do your bookkeeping. Like hiring a bookkeeper to do it. I mean
if you're just starting out in your business it's fine to do your
bookkeeping yourself but as you grow, you're not going to have the time to do
it. And you want it done well because you can make good business
decisions once you do proper bookkeeping, all right? So again,
if you're a sole proprietor this might be a little different for you you know,
you might just get a Quick Books self-employed or something and just
attach it to your checking account and then there you can sort out
your business and personal transactions and kind of create financial statements
that way. But if you're not self-employed and you have an LLC or S Corporation or
a partnership or whatever, you need some proper bookkeeping no matter what,
alright? Four, don't buy stocks or equipment with your EIDL money. This
money is meant for working capital. It's meant for helping you get through this
crisis, through this pandemic. It's supposed to help you stay afloat
especially with so much uncertainty. Even if you don't need it right now, you can
hang on to it until you do need it. But, don't use it to buy stocks or equipment.
Stocks, I know it's an investment, it's a long-term investment, it's not
really "gambling" but it is a higher risk investment than say just putting it in
the savings account, alright? Buying equipment is forbidden in
the SBA contract. When you get their contract for the loan you cannot
use the funds to buy equipment, okay? It's just as simple as that. If you need to buy
equipment, use your revenue generated money to do it and use your EIDL
loan for working capital expenses. If you wanted to open another checking
account or a savings account to put your EIDL funds in, which I recommend, it's
safer to do it just in like a savings account so you can earn maybe a
little interest while it sits there rather than buying stocks and trying to
invest that way. You know, right now might not even be the best time to do
that anyway you know, since the market seems to be a little inflated. And if
you're planning on buying like put options that's just straight up you know,
you're going towards gambling territory if you're buying open options. So five,
don't use it to refinance your debt. Now, the only exception here is if you
had a credit card that you had to use during the pandemic, during
government ordered shutdowns to float your business through. You can use the
EIDL funds to pay off the portion of the credit card that you used for that
purpose. You can't use it to pay off credit card that you've had before the
pandemic. You know that you've been accruing for a year or longer.
Don't use the funds to pay that off. That's sort like refinancing debt. Don't
use the funds to pay off your car loan or business debts or mortgage, okay?
That's not what it's meant for. It's meant for working capital. Six, don't
take 30 years to pay off the loan, okay? The loan term is 30 years and
that's meant to give, to provide you more flexibility. But I definitely don't
recommend you take the full 30 years to pay it off. Because you know the scary
language and the overreaching language that the SBA has in the contract when
you sign on for this loan, if you take 30 years to pay it off, then that means they
got you by the neck for 30 years. So pay it off as soon as you are reasonably able
to. I've got some clients who are planning to pay it off in 2 to 5 years. That
means that gives them less of a chance to be reviewed by the SBA. It's less
of a chance to be audited by the SBA. You know, just the shorter time that you take
to pay it off the better. With a 30-year term, that gives you a lot of flexibility.
Because you can just pay extra, you know, when you have the extra money and if you
don't in certain time periods, you just keep paying the minimum payment. And
seven, don't use the funds to take distributions, okay? It's it explicitly
says in the contract don't use the funds to take
distributions, use it for working capital. And if you need to take distributions, if
you're a corporation owner then take it with revenue generated money.
Don't use SBA money to do that. And just to be safe, don't take extravagant
distributions or extraordinary distributions. Just take normal, necessary
distributions if you need to, alright? I mean that's
again good practice to have outside of SBA scenarios. You know, don't take
distributions willy nilly. Try to have some kind of structure around it.
Like every month, every two weeks, have sort of a consistent schedule for it.
Because this is another thing that can get you in trouble legally just like
I talked about with co-mingling before. If you just take distributions willy-nilly,
then that can actually get you in trouble. If you were to get sued, or if
you came into financial trouble with a lender, you might lose your corporate
veil of protection there. All right that's all I got for today. I'm not going to read
comments this time, maybe for the next video I will. But thanks for joining
me, Again, please smash that like button when you have a chance. And also if
you're new here please subscribe. I would really appreciate it. Have a good weekend
y'all. I'll see you on Monday