Can you use your EIDL loan to pay off your credit card? Thanks for joining me
today. My name is Ryan. I'm a CPA, I have my own CPA firm. I'm doing YouTube videos to
help answer a lot of questions for everybody. So, thanks for joining me. Be
sure to subscribe to my channel if you want to stay updated with any of these
things that are going on with the SBA, the IRS, the Department of Treasury. And
if you want your questions answered, leave a comment below. I do my best to
answer all your questions and if I don't get to them just keep trying. I'm sorry.
I'm trying to manage my time as best as possible. Before we start the credit
cards, I just want to talk a little bit about the frustrations that I'm hearing
about. People saying that the SBA should not be allowed to dictate how they spend
their money. Especially if they have to pay the money back. Like, I understand
your frustrations okay? However, this program, the EIDL
specifically is a very privileged and premium program. And what I mean by that
is that you have a very low interest rate - 3.75 okay? And you have a 30-year
payback term. And you have fairly lenient requirements to getting approved for
this loan. Like I would say, very lenient requirements. So, the SBA is taking on a
lot of risk lending this money out. If you're looking to grow your business or
expand your business there are plenty of other programs to do that with. A lot of
other loans, a lot of ways to get financing, a lot of ways to get investors,
plenty of ways to do that with outside a disaster. Okay, this loan is meant to
support businesses through a disaster. And so if you are using it to grow your
business, you are taking it from somebody who really needs it to just help their
business survive. And that's why there are restrictions to this. And that's why
they will be doing what they can, to the best of their ability, to crack down on
any misuse of the funds. The SBA doesn't want you gambling with their money
and you're also taking it from somebody that might really need it to survive. All
right? So, let me know what your thoughts on that are in the comments below. So, can
you use your EIDL loan proceeds to pay off your credit cards? The answer is generally
yes you can and there's some stipulations here. First, it's got to be a business
credit card. If you're a corporation or a partnership or a
multi-member LLC you've got to have a business credit card. Even if you're a
single member LLC or self-employed, ideally as a CPA, I would love for you to
have a separate business credit card from your personal credit card. You know,
where your business credit card you only have business transactions and vice
versa with your personal. And ideally you don't have any commingling, any mixing of
usage there. But, if you were self-employed and you do have like a
personal credit card that you use for business you can still use the EIDL
funds to pay on that credit card. You can only use it to pay the business portions.
And what I recommend, just keeping really good track of your documents to be able
to prove how much money you're using the EIDL loans for and what portion is for
business. For that, you know, receipts are always a good standard there. Like, even
for taxes you should keep receipts for up to seven years. You don't need to give
it to your CPA. Please don't bring it to your CPA in a little box here full
of receipts. But, for audit purposes if you incur expenses,
you need to have receipts. The IRS will not look at your credit card statements.
If you went to Wendy's with a business partner, you've got to have the receipts.
IRS wants a see receipts to make sure you're getting like a reasonable amount of food.
Or that you actually were where you are at the time that you say
that you were, with who you're claiming you were. Receipts over credit card
statements. Keep good documentation if you're self-employed. Same thing with
corporations, partnerships, multi-member LLCs. Even if you have a business
credit card, please still keep receipts. Just it's a good practice. A
good habit to do for taxes every year. Let alone you know, trying to make sure
the SBA is happy. So that's my quick tangent here. If you're
self-employed or you own a business, please make sure you have a separate
business credit card from your personal credit card. The same thing with your
checking account. If you are self-employed and you plan on doing
long term, I recommend just getting a separate checking account for your
business, separate credit card. Just try to keep everything business and
personal separate. You know, like when you form an LLC, the rumor is that you form
an LLC and your personal life is protected from any business liability.
And while that's partially true, it's not automatic. You don't just pay $50
to the Secretary of State and then you're good. You have to follow
formalities and one of them is keeping your business and personal stuff
separate. It's very important okay? Also in order to use your EIDL funds to
pay off your credit card you still have to follow the SBA guidelines. That means
that you can't use your credit card to buy fixed assets and then you use the
EIDL to pay off the credit card. So, just make sure you're still following
guidelines. And the credit card debt that you incurred has to be from 2020 I
believe, in order for the funds to be eligible to pay off that credit card. The
idea here is that you had to use a credit card to sustain your business
through the crisis. Through the shut down or whatnot. And now you've got
the EIDL funds, you just pay it off. That's the idea here. They're not going
to allow you to pay off your credit card debt you've had for years with these
EIDL funds. You can make the payments on it, but don't pay it off. Does that
make sense? This kind of same thing with like the
the long-term loans. If you had a long-term loan from before
the crisis, you can't use your EIDL funds to pay off that loan. But you can
use it to make the payments on, the regular payments. This might seem
frustrating but again, this loan is meant to float you through the crisis. It's not
meant to like improve your financial situation. It's not meant to improve your
business or anything like that. It's just meant to float you through the crisis. If
you wanted to pay off your credit card debt that you've had for years, you can
do that with other loan programs or other ways. Like you have the option to
do that outside of this SBA disaster program. Maybe this disaster
program has sparked like an idea, and you at least know like you can use funds
to you can use the loan to refinance your credit card. Maybe that's an idea
that got triggered in your head. So now you
can go apply for another loan to do that. But just don't use the SBA funds to pay
off really old credit card debt. What it comes down to is this, use your best
judgment on this. I talked about this my video about buying equipment. Just use
your best judgment. If you think you're breaking the rules or you have an
inkling about it, just question it a little and make sure to
test it. Like if you think paying off old credit card debt feels logical or feels
right, just think about it. Poke some holes in that theory and see if it
checks out. Otherwise, ask your CPA or ask me. I'd be happy to try to answer those
questions for you. Really use some, use your best judgment. I believe that you can
discern the difference of what's right and what's wrong. That's all I've got for
today. Thanks for joining me. Be sure to smash that like button and smash that
subscribe button. Let me know what you guys think in the comments below.
I'd love to hear your questions or comments or frustrations, all of it. I'd
love to hear it. Take care for now and stay safe. I'll see you next time.