Hey there everybody. Today is Friday June 5th. Thanks for joining me today. I'm
going to talk about what to consider when you get accepted for the EIDL
loan. Because there's a lot of things to impact when you read through the EIDL
contracts and I know people are really looking
forward to this money. But there's also a lot of things that
make me a little nervous. So, let's run through that right now.
But first please subscribe to my channel to keep updated
with new content regarding the IRS, the SBA,
all this crap that's going on. And then smash that like button for the YouTube
algorithms to do their thing. You know what I mean? All right, if you
got the EIDL loan and you read through the contract you're
probably feeling a little nervous. And i'm going to run through some things
in case, you know, there are people out there that are still expecting the loan
but haven't gotten the approval letter or haven't gotten
the portal email yet. Just so they can have more time to think about it
before they actually get accepted.
As you know the the first thing that that the contract lists
is collateral. If you take a loan over $25,000
the SBA basically has a right to your collateral and to
liquidate it if they feel that you're going to default on your loan. And this is
just your business collateral. I mean it's it's pretty crazy on the
contract that it says you cannot sell or transfer your collateral or your
property without written consent of the SBA.
You have to maintain your property in good condition,
all that shit. Basically the SBA can tell you what to do with your property.
Another thing that's notable is that you have to keep really clean
records of your business. And I think that's
fine and good. You should do that anyway.
You should keep receipts, clean, bookkeeping,
invoices, all that stuff. You should be doing that anyways. But the thing is the
SBA has the right to audit you or to review your records at
any point. They may require you to send financial
statements to them every year and they may require you to have those
financial statements reviewed by an independent auditor, that you would
have to pay for. I know in the contract that says review.
It's not really an audit. Okay, an audit is a very
in-depth process. It takes a long time. It's very detailed.
Compared to a review, is more high-level, more brief and
usually more affordable. So, the difference there, you know, you can
expect to spend at least $5,000 or $10,000 on
an audit of a small business. Whereas, a review would might be much
cheaper. Maybe $1,000 or $2.000. I've seen videos out there on YouTube
saying the SBA can demand that you hire an independent CPA
firm to audit your books. But what they really mean is just
reviewing your books. Okay that the SBA itself can also audit or review
your books. I don't know how likely that's going
to be since their resources are pretty low. But, they
can force you to hire an independent accounting firm to
review your your financial statements and your books.
Next thing I've been seeing questions and comments on is that in the
contract it says that you have to buy
American-made products when feasibly possible.
Now obviously, sometimes this is not possible and that's fine. But
it seems more like a good faith certification that you will buy
American-made products. The next thing is that you are
restricted to what you can distribute out of your company. So, if you
want to take like property or cash distributions,
you basically can't do that now without written consent of the SBA.
And what I would imagine is, like if you're an S Corp and you take a salary
and a distribution you probably want to check with the SBA
first to make sure you can still keep doing that.
As an accountant, I don't really see a problem with that because
if that's what you're really, if that's what you've been doing all along is
taking part salary, part distribution to me I
see that as part of your compensation, right? The SBA might not see it the same
way. So, you have to get ahead of it and let them know.
And I think with this clause they just want to make sure you're not taking
a bunch of loan money you're not taking $150,000
and then just withdrawing it or distributing it to yourself as the owner
and then having fun with the money. So, they put in this strict clause to
prevent that. And hopefully the SBA will be lenient
with you if that is part of your normal
compensation as the owner. The other thing that's in the contract
is how you use the funds. Which we've been talking a lot about
on this channel. It's basically for working capital which
is expenses that you have to incur to
maintain the day-to-day operations of your business.
And that's it right? So, this loan is meant to just float your business,
used as working capital. And one thing I want to note here
is that you don't have a time limit to use the money.
If your if your economic uncertainty or economic injury
is mild right now you can still hang on to the money
just in case you think, just in case it gets worse in the future.
You know, it could get worse in a few months or maybe next year. Like who knows.
But you don't have to use it in a certain amount of time like the PPP.
And the last thing that I just wanted to note was that
if you accept this loan you have to put up
an SBA poster. SBA Poster 722. It's a poster
related on equal employment and you've got to post that up
in your break room or whatever you have your other employment posters.
Now what happens if you don't use the funds properly or if
the SBA finds that you are you know lying to them
or whatever? What they can do is they can charge you and make you pay back the
loan of up to 150% of the loan amount.
That is some pretty harsh punishment. Definitely motivates you to use the funds
as they are meant to be used, and to be honest with the SBA. Now, SBA
has a lot of loose definitions on defaulting on the
loan. And defaulting means that the SBA can
now call the loan due if one of these things
happen. And with typical lenders how you default
is if you miss a payment or miss a string of
payments and they're going to call the loan due.
And if you don't pay it then, you know, they can foreclose on your house or
seize property and all that stuff and same thing here. The SBA can
seize your property if you default. But their definition of defaulting
is much more broad and i'll go over some of them.
It's not limited to these ones but these are some of the ones that kind of
caught my eye. So first one is obviously if you don't,
if you miss a payment you've defaulted. So don't miss a payment.
That's what it says in contracts right? If you fail any of the provisions that I
talked about earlier or any of the provisions on the contract and you fail
to meet those then you would be considered defaulted
as well. If you default on other SBA loans then
you would technically be considered defaulting on
this loan. If you have a change of ownership
or if you sell your business, the SBA loan is tied to that business and you
sell it then you would have defaulted on the
loan. Because the new owner is not responsible for this loan that you
incurred. So, change of ownership or selling your business
the loan is considered default. You have to pay it back. And lastly if you don't
pay your required taxes on time, income tax, sales tax, excise taxes,
whatever. The SBA may consider your loan as
defaulted. What I think here is it's pretty overreaching.
You know, like I get it the SBA is giving this
money out for very cheap and favorable terms. But all these things are
really overreaching in my opinion and makes me nervous. Even though I don't
have the EIDL loan it still rubs me the wrong way a little bit.
So,what do you do? It just depends on how
risk adverse you are. Like, are you planning to use these
funds legitimately for your business because you are experiencing
experiencing economic injury. Then you should probably take the loan.
And you know, you don't have anything to hide you should probably take the loan,
if you really need it. After you take the loan, I would make an effort to pay it
back as soon as possible. Don't wait the 30 years. That gives the
SBA more power over you for 30 years. If you take the loan, make an effort to
pay it back ASAP. Because man you just don't want the
you just don't want this going on for 30 years. You don't want them to have
control over your collateral, over your distributions,
over the way that you operate your business, how you use your money.
You don't want that for 30 years. So, when the crisis is over
pay more towards the principal every payment or every year.
Make larger payments every year towards the principal.
Just do what you can to pay it off sooner than later, all right?
That's all I've got for today. Thanks for joining me.
And be sure to subscribe to my channel for updates and please smash that like
button on this video. I'll see you next time have a great
weekend. Take care.