Hey there everybody today I want to talk a little bit about using your EIDL loan
for equipment purchases. But before I go into that I just want to introduce
myself my name is Ryan. I am the owner of a CPA firm that I started. Please leave
any questions that you have for me in the comments. I'll do my best to answer
them. I'm currently taking some time off from work, so my time in front of a
computer to answer these questions may be limited. So, I'll do my best. I'm sorry
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the PPP and EIDL loan and anything SBA or IRS related during this pandemic. Okay.
So, can you buy equipment using your EIDL proceeds? And as frustrating as an answer
as this is, it really depends. One thing you have to keep in mind is that the EIDL
funds are meant to carry you through this disaster. It is to help you stay afloat.
It's not meant for expansion and growth. So, the SBA is really trying to deter
people from using this loan as like a low-interest loan to grow their business.
And so, when you look at all these questions that you have about like,
can you use it to buy a new car? Can you use it to buy a truck for your work? You
have to come at it with the mindset of is this expanding my business? Or is it
not? So, it's this is one of those gray area rules that's gonna take a little
bit of judgment and discernment from your end to be able to navigate. I don't
think there's any particularly right or wrong answer it just depends. And it depends on
what you're using it depends on what you're planning on purchasing. And it depends
on why you're purchasing it. Your intent behind it. So, those are, that's a
very important thing. So, can you use it to buy equipment? Technically, yes you can.
And it depends on why you're buying that equipment. I've been doing some research
and some thinking over the weekend, and I think that if you buy equipment
financing it is safer than not. So, what that means, is if you have to buy like a
new widget maker, or whatever, and you get it financed so you can make monthly
payments on it. That is safer than just using your EIDL funds to pay the whole
thing off out right. Also with leases, leases to me are safer than buying
equipment. And also remember this all just depends on why you're getting this
equipment. Leases, since you won't own the equipment, you're just making payments
on it. That is also a safer bet. And so what we're trying to go for here is
whether or not these purchases or leases will pass an SBA audit if they decide to
audit. You know, I'm not saying that you will be audited. I'm just saying that
you may be audited and you should treat these scenarios as if you are going to
be audited, and that it will pass the audit. What it comes down to is, if
you can properly explain to the auditor why you bought this equipment, and if
they agree with you. So, I'm going to run through some scenarios that people have
been asking me. I think it would be just good to run through these scenarios
to figure out whether these equipment purchases are viable or not. Some people
have been asking me what if you have equipment that is broken like a salon
chair that's broken? Or maybe you have a company truck that just broke down? It's
irreplaceable and you have to get a new truck in order to function. I believe
that in these scenarios you can use the your PPP funds to purchase
equipment. Because if you have a truck that's broken and you can't conduct
business anymore, that is definitely harming you. And if
you have to replace it with a new truck, that is not expanding your business.
You're just replacing your old truck with a new truck. Same with like a salon
chair. You're replacing the old broken one with a new one. You're not really
expanding your business. So, in this scenario I think that's okay. Another
scenario is what if you were in the middle of an expansion right when this
crisis hits? So, let's say you're a restaurant owner who just started
leasing out the space next door and they're building it out and they're
requesting more money as they build it out. So, in this case I also think it's
okay for you to use your EIDL for that purpose. Because now you're stuck
with that new space all right, it already happened. They're already building it out,
so if you can't finish it, if you can't finish the build-out now you have like a
useless space there. And that's going to be hurting you more than its helping you.
And since the expansion has already happened, it's already been underway, I
think it's okay to use your EIDL funds for that. And you can apply that same
logic to any other type of scenario where the expansion was
already happening while the disaster hit. The next scenario is if you just
signed a contract or just took delivery of new equipment right before the
crisis hit. So, you just sign the contract for a new
widget maker and it's, you know, it's like the widget maker extreme and it can make
widgets like super fast. Way faster than your old widget and you did this like
mid-February. Right? And you're expecting delivery of
it, let's say, like end of March. Right after the crisis
hit. So, is this a viable option? Well, I think the same thing here. You already
are expecting the equipment. You sign the contract for it. So, you're stuck with it.
And let's say this is just much better for your business, and since it happens
before the crisis, this is okay. Now if you finance this widget maker,
then I would not use the EIDL loan to just pay it off. Okay? That's
frowned upon. That's considered refinancing old long-term
debt with with your EIDL. What I would do is just go through with the equipment
purchase and pay, make the monthly payments if that's how you did it.
Or if there was no financing option at all,
then you can go, you can continue to move on with purchasing the equipment using
the EIDL loan because it was already in motion before the crisis hit. Okay, in the
last scenario I'm going to go through as if you had to hire an employee during this
time. And you had to buy like desks and chairs and all that shit for for their
office or or for their space. That's technically okay too because, you know,
like although office equipment - like desks, chairs, bookcases, filing cabinets -
even though those are technically fixed assets, they're not really fixed assets
to the amount that like you're expanding your business. Now this also
requires some discernment here, you know. Like, why are you hiring this employee? Is
it to replace an old employee? Are you moving a part-time employee to a
full-time? Are you moving spaces around? I think all of these questions matter.
So, if your businesses is naturally growing and you have to hire employees to keep
up with the growth that's okay. But you can't hire employees to grow. You can't
buy equipment to grow. But if your business is growing and you have to keep
up with it, that sounds like more of a scenario that is okay. So, that's the
tricky thing here. You just have to use your best judgment. Trust in yourself,
really trust in yourself. Use the best judgment. Be able to discern and just
know that the funds from this loan is not supposed to be used to get rich
quick and grow your business. It's to help support you through the crisis
whatever that may be. While supposed to be used for working
capital, whatever that support means to you,
you should be able to use it for that. To help get you through the crisis just not
to grow, okay? I know it's, it's probably not a very
satisfying answer just because it all depends. It's such a gray area which
makes this whole thing more frustrating and more confusing. But we're trying to
do our best to inform you on all the other YouTubers out there that is just
trying to do their best. These rules are being interpreted by other CPAs, by
financial advisers, by real estate professionals. They all might have
slightly different interpretations. Some rules are definitely black and white and
some are very gray area. So, just do your best to discern. As long as your
intent and the reason of why you're you're buying equipment or hiring
employees or whatever is aligned with the SBA guidelines, I think you would be
able to pass an SBA audit. You think that you're doing something that feels a
little wrong, or you know just look at that just question yourself. Question
the intent. I I believe that you will know how to properly discern here
whether or not you're using these funds properly. That's all I've got for today. Be
sure to subscribe to my channel if you want to keep updated on new stuff. And
please like this video if you enjoyed it or you thought it was helpful. And I'll
see you guys next time. Take care
you