hey everybody this is same Kwak here one of the Kwak Brothers hope you had an
amazing Memorial Day weekend and I've been getting a lot of questions lately and
that is Sam what can I use the SBA EIDL or money for can I use it for paying off
my mortgage can I buy a new truck for my business can I pay myself a bonus or can
I go and buy a rental property so with that being said let's go and break down
the do's and don'ts with the sba EIDL loan and what you can cannot use the
money for welcome back everybody this is Sam Kwok here once again so let's go
break down the do's and don'ts with the SBA EIDL loan and some of you guys may
know i've been approved for one hundred twenty thousand dollars with the eidL
loan but i declined it and did not sign the loan document in fact i probably
never will and if you wonder why go and check out my last video which i broke
down the contract for the EIDL loan and why i chose to walk away from it as
always before we get into the video be sure to subscribe to a channel if you
want more updates information about the sba loan programs stimulus programs as
well as learning how to invest in real estate
okay so first let's go and break down what can you use the EIDL Loan money
for right what are the do's of the EIDL money so first of all you can use it for
business operating expense so the language that the contract says is
working capital so what is working capital according to SBA definition well
working capital is any expenses incurred while you're producing income so this is
rent for your office maybe a mortgage payment for your commercial real estate
that you bought right like in a warehouse or an office space payroll
right paying your employees which is probably gonna be a big expense for your
business if you have any employees you can also pay for virtual assistants so
here in our business we use offshore virtual assistants to help us edit
videos also create software programs to which obviously is required to keep the
business going also with the sba eid alone you can also use it to pay your
independent contractors so if you're a landlord watching this you can use this
money to pay your property manager you can pay for any cleaning services that
were required for your rental property but you cannot use this to repair any
physical damage for your properties and trust me guys I'm not the
making new rules here so if you're a landlord and you're wanting to use the
spae ideal money for physical repairs unfortunately that does not qualify as
working capital or working operating expenses for your business such as
utilities or if you have an assistant that helps you run your property
management you can pay them using the sba CIDR but not physical damage repairs
the next big item that you can use the sba EIDL loan money for is accounts
payable so this also includes any net 30 accounts or if you're invoiced and you
were expected to pay within 30 days you can use the sba EIDL loan money to pay
for some of those items and bills that are coming to you with your business and
as mentioned earlier you can also use the sba EIDL loan money to cover in a
utility payment for your office space warehouse or place of your business if
you run a brick-and-mortar store or a retail space now one quick note about
the rent and mortgage payment part you cannot use the spae idea a little money
for any advanced payments or early mortgage payoff so you can only use it
for immediate payments that are coming due for your mortgage and your rent so
from my audience that wants to pay off your mortgage faster sorry you can't use
the sba EIDL loan money for any advanced or early payments on your mortgage same
thing goes for your rent you cannot do any advance rent payments you have to
pay them as they are coming due and also you can use some money to you know smash
the like button for the YouTube algorithm that helps us a lot right we
want to get this video out to as many people as possible
so they understand what are the do's and don'ts with the SBA EIDL loan so to kind
of summarize what you can use the SBA EIDL alone the rule of thumb is basically
use it for working capital or any immediate operating expenses that also
includes credit card payments so if you bought something for your business or
you've been doing your normal operating expenses on a credit card just like my
business then you can use the SBA EIDL loan money to pay for those credit cards
as most credit cards are not considered long-term debt okay now let's go into
the list of what you cannot use the SBA EIDL loan money for here are the dome so
first you cannot use the SBA EIDL little money for distribution see the owners
any dividend payments loaning money to yourself or loaning money to other
businesses this is to close any possible loops where you can go and use this
money for your own personal gain right to go
buy yourself a Lamborghini or to go buy yourself a Porsche right you can't do
that with the SBA EIDL Loan so no distribution of dividends the owners you
cannot pay yourself however you can't pay yourself if you are on the payroll
of the business so if you get a w-2 you from your own business right if you're a
corporation you can pay yourself payroll using the SBA EIDL alone but again you
cannot do any advance payments right early payroll payments you can't do any
of that it has to be on a regular payroll schedule number two you cannot
use the SBA EIDL alone for any expansion of your business so know you can't go
and buy another office space or no you can't you know use it to go and pay for
a new lease right it has to strictly be for working capital and operating
expenses now keep in mind guys what is the title of this loan economic injury
disaster loan right this loan was designed to help you the business to
stay afloat during harsh and challenging times it's
not meant for you to go and buy a new car right or to go and you know expand
or franchise anew aside and you can't do that right it has to be strictly for
operating and keeping afloat with your existing business the next thing as I
mentioned earlier you cannot use this to pay off your mortgage early again that's
something that I thought of when I nearly got proved but upon researching
and reading about the EIDL loan we wouldn't be able to go and pay off our
mortgage early even if it's for commercial purposes so unfortunate can't
do that number four this is for my landlords listening you cannot buy a new
property sorry I know the interest rates really low 3.75 at a third of your face
unsecured I mean it sounds like an amazing dream right for for a loan but
no you cannot use this to go and buy a new rental property nor can you buy it
for fix and flips either so for my fixed and flippers listening so nope you
cannot use the EIDL Loan money for those types of purposes and last but not least
number five you cannot use this a ideal loan money for buying a new car or
buying a new truck even if you have a trucking business right if it's a fixed
asset you cannot use the EIDL loan money for those types of purpose now I did get
a question from one of my members in our Facebook group which by the way you
should definitely join if you haven't already
but this member pretty much asked a question where could I go and use the
EIDL Loan money for you know covering payroll cause my working capital and
then allocating the money that bid is spent for to going by properties can I
still do that now again I'm not a CPA I'm not an attorney right this is not a
legal or tax advice or anything like that but I believe the key here is
proper record-keeping right as long as you document where the money is going
how the money is being transferred how the money it has been spent that is
gonna be the crux for everything when it comes to the auditing portion of the EIDL
alone which I'll cover in just one second one of my good CPA friend also
mentioned creating a separate business account just for the EIDL Loan so that
you're not commingling the EIDL loan fund with the other revenue that you've
generated from the actual activity in your business so that way you can
properly document your EIDL loan transactions where the money is going
how the money has been spent that way when there comes a time where you get
audited you have the proper documents to show hey I spent my money here and there
which are all propria and qualifying expenses under the EIDL agreement
now of course with that being said everyone's asking well how would the SBA
know if I spent the money on the right places or how would they know if I
squandered the money buying a new Ferrari or how they know if I spent the
money to smash the like button for the YouTube algorithm right so how they know
well according to the loan agreement the SBA does require a strict bookkeeping
record-keeping also maintaining a ledger of receipts invoices pretty much all
records of how you spent the money for the SBA Eid alone
also the SBA has a right to audit your books and your records and you're the
one that has to pay for the CPA to come and audit your business furniture report
that's gonna be turned in to the SBA so that the SBA knows that you've been
spending the money on qualifying expenses and purchases not on buying a
new car or buying a new rental property and for my rebellious people watching
this you guys might be wondering well what is SB gonna do about that right
what if I do go and spend the money I'm buying a rental property what can s be a
do well according to the loan agreement the SV can come and find you up 200 to
150 percent of the principle loan amount that you borrowed under the sba eid loan
program so if you borrowed $100,000 under the sba II ideal program the SBA
can find you up to $150,000 if they that you didn't use the money for the
proper and qualifying expenses and also if the SBA deem that you've lied or you
misrepresented your business or you cheated on the application they can
obviously come and see you and try to collect any civil damages or fines from
your business and also keep in mind if you borrow more than $25,000 the SBA has
collateral security interest over your business so they can come and take
whatever you want in case you default on the loan and what
is this the agreement also says that they can find you for not smashing the
like button on this video I'm just kidding about that but hey we definitely
go and smash the like button for the YouTube algorithm but in seriousness
guys don't break the rules and you definitely don't want to violate any of
the terms under the sba EIDL loan program now those are some of the do's and
don'ts the Kanaka not so if I find any new rule or if I find a new section in
the loan agreement that I haven't covered I'll make sure I make a
follow-up video to make sure that you guys are being informed again I'm not a
CPA I'm not an attorney I'm just a guy on the real estate investor giving you
my interpretation of the sba ii ideal loan agreement so make sure you guys do
your own research for your business and for your own situation so there you have
it guys hope this video was very helpful when it comes to the breakdown of can
and cannot the do's and don'ts with the e I do alone if you guys have any
questions leave them down below and if you guys enjoy this video be sure to
subscribe to your channel if you want more videos of breakdowns on sba e ideal
programs any stimulus programs real estate market updates as well as
investing in real estate be sure to also hit the bell notification icon so you
get notified as soon as release a video and check out some of the other videos
we have about real estate investing