SBA EIDL Loan bubble... With over 60 billion dollars allocated to the SBA
EIDL loan program and many businesses and rush to borrow under the program I'm
predicting that there could be a potential for an SBA EIDL loan
bubble that can burst and backfire on millions of businesses across the United
States so in this video let me go and break down my concerns and some of the
reasons why I believe that there could be an SBA II ideal loan bubble that
could potentially hurt the businesses across the country
hey what when I real this is Sam Kwok here one of the Popular's and as you
know last few weeks we've been tracking and following the SBA EIDL loan program
how it works and what the application process is like and what paperwork is
required to finalize a loan application and and I also applied myself and got
approved for $120,000 under the SBA EIDL loan program but I chose to decline it
for many reasons and I actually broke down the loan contract in my last few
videos and explained why exactly I'm turning away from the EIDLwell now
after reading the SBA EIDL Loan contract it started making me wonder and think
about what are the potential consequences of millions of businesses
taking the offer under the EIDL a loan program and further thinking led me to
see potential cracks as well as how this loan could turn into a massive bubble
that's gonna backfire against the businesses but first before we get to
the breakdown be sure to subscribe to our channel if you want more updates
about the SBA II ideal program our channels regularly about real estate
investing and buying rental properties but we also you know cover other
financial matters that could be very important for your business as well as
the business of the landlords and real estate investors so be sure to subscribe
and hit the bell notification icon so first what's wrong with the EIDL loan
program well it's nice enough for the government to have set up some sort of
program to help businesses in case of a disaster such as what we've seen in the
last few months but after reading the loan contract as well as the
authorization agreement there's some things that I particularly don't really
like about this loan and as I mentioned I did make a separate video breaking
down the entire loan contract so if you want to see that video go and check out
the link down below in the video description
so first the SBA is mandating strict documentation and record-keeping
requirement for all borrowers now my opinion is that if
you run a business this should be a given right you should keep track of
your books you should keep track of your invoices and all the receipts that
you've created now there isn't a specific guideline as to how this needs
to be done according to the SBA standards but my guess is that if you've
done your everyday bookkeeping with an accountant or CPA you should be okay for
the most part that's the SBA requires that you use the funds only for working
capital and even within working capital category there are certain items are
excluded from the qualified working capital expense category such as
physical repairs so if you are a landlord listening to this and watching
this video any physical damages such as damages to your rental property or
repairs that need to be done unfortunately you cannot use the funds
for those types of repairs so there are a lot of business owners right now that
are wondering what exactly is considered a qualified working capital expense
that's specific to their own industry as well as their own business
third if you're borrowing more than $25,000 with the e IDL loan program you
are required to pledge an indefinite amount of business assets as part of the
collateral and if you wish to transfer or sell any part of your business or its
assets you have to get the permission from the SBA to do so and again these
are only a handful of the requirements under the SBA II idea loan program if
you want to see a full breakdown of the loan contract again the link is down
below in the video description where I go and break down the entire loan
contract now the problem is that the provision within the loan agreement is
all-encompassing and very vague where it could cause some major confusion from
the business owners I mean already guys for the last few videos that I've
released you guys had ton of questions as to what you can and cannot use with
the e ideal loan agreement and unfortunately not even CPAs and some of
the attorneys that I talked to have the answers to some of these specific
questions that you have about the SBA eiv Oh Ellen but the SBA provision also
includes a default clause that can apply civil penalty and fines for those that
violate the agreement or default on the realm so my biggest issue right now is
that with the vagueness of the loan agreement as well as a lot of the
unclear provision inside the loan I'm kind of concerned that well how do these
business owners may accidentally violate the loan agreement simply because the
loan agreement wasn't specific enough to address of the concerns or the questions
that the business owners had and it's not because a lot of these business
owners can't pay back the loan it's just mainly because a lot of these other
loan provisions inside the agreement that would constitute as default
I mean without a more clear and detailed information about the loan agreement the
decision whether this business has the vaulted or has not defaulted could
remain arbitrary at this point and of course the biggest and the obvious issue
right now is the fact that you didn't smash the like button for the YouTube
algorithm so go and take the opportunity right now turn that like button to blue
and that's gonna help us a lot help us to get this video out to as many
business owners as possible also for the businesses that have borrowed more than
$25,000 under the EIDL loan program they have to pledge an indefinite amount
of their assets both tangible and intangible so in case of a default and
accident default what's not to say that the SBA can come in anytime and seize
all the assets and seize the entire business whenever they wish to so my
concern guys is that in a few weeks or a few months small businesses can
potentially default on their SBA loan accidentally mainly because there wasn't
a clear detailed guideline as to what is considered default and what's considered
a working capital expense that's qualified under the SBA II ideal loan
programs and many businesses can potentially lose their assets or entire
business if they borrow more than $25,000 under the SBA II ideal loan
program now this could also mean a wave of bankruptcy that could happen within
the business owners and this could interfere with the existing credit that
the businesses already have that wasn't part of the SBA eiv oh well so if I
default on an SBA EIDL loan program and I have to declare bankruptcy and that also
affects some the other credit that I have had which I have not to fault it on
and I was in good standing and then it could trigger a secondary default on all
the debt and other loans that the businesses have that obviously weren't
part of the SBA EIDL loan deal and if I were to give you my honest opinion on
this I'm not a big fan of more control and restrictions that the SBA is placing
on small business owners especially in a dire situation and the effect of the
pandemic that we went through the last few months I mean I get the SBA EIDL loan
program is meant to be a lifeline the last resort for many business owners but
so many businesses have been affected by this pandemic that any loan or any help
right now seems very attractive at this point and my fear my concern is that
business owners are taking the EIDL loan program without further consideration of
the consequences and restrictions that they would have with
the program ultimately the freedom that we have as business owners are being
taken away by the EIDL Loan programming for example if I as a business owner
need to make a rapid and fast decision that is a time-sensitive manner for
example if I need to hire a new employee or I need to buy a new asset or sell an
asset I won't be able to do so without getting the permission from the SBA
first so therefore there's additional regulatory cost of running a business
which again could slow down the economy could slow down the growth could
definitely slow down how fast I can grow my business definitely not a big fan of
all the things that I've just mentioned I know at the end of the day that the
SBA simply wants to help out the small business owners but it's also equally
important that as business owners we need to understand what are the
consequences of taking such assistance as well as taking on loans that are main
dated by the SBA as well as some of the government programs that are out there
and at the end of the day unfortunately a lot of business owners are signing
away on the EIDL loan program amidst the desperation and hiden emotional time
which by the way isn't the good mix when it comes to making good sound business
decisions so what do you guys think tell me the comment section down below will
there be a major wave of SBA loan bubble or even if it's not a bubble could we
potentially see a wave of small business owners struggle even more because of the
consequences of default or not having a clear guideline as to what the SBA wants
within the EIDL loan program and as always be sure to subscribe to our
channel if you want more updates about the SBA EIDL loan programs as well as
investing in real estate investing which by the way go and check out some of the
other videos we have about buying rental properties and creating financial
freedom through rental property