EIDL Loan: What Can You Use it For? - YouTube

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

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