Should I Accept The EIDL Loan? [EIDL CALCULATOR] - YouTube

hey guys I'm Jamie Trull I am a CPA a financial literacy coach and a profit

strategist and more recently I have spent most of my time over the last

couple of months now just researching and really trying to understand all

things stimulus so that I can help you guys understand it and know how to get

access to some of these funds to help your business I did a video not too long

ago on what can I use an EIDL alone for and it was really popular so I wanted to

do a second video on the EIDL because I know a lot of you guys at this point

are getting those invites into the portal you're seeing your loan offer

hopefully and you're trying to decide okay what do I do maybe you're reading

through the paperwork and trying to figure out if it makes sense for you to

accept the Eidl and really think about the plan you're gonna have for the

payback on that as well and whether it's worth it so I wanted to talk through a

few things from that that I think are really important to consider when you're

deciding should I take it or maybe you've already taken it but you're

trying to decide how you should spend it what your payback period should be and

I've also got a free tool so if you stick to the end I'll tell you about the

free tool but you can download that will help you with all of this okay so first

though I want to point you guys to my other video if you haven't seen it I'll

link it at the end here so once you're done with this video go what that one

over there it's called what can I use the ideal for and we dive into the

contract we dive into some other information that's come out from the SBA

that specifically clarifies what you can use with it and what you can't and there

are a decent amount of restrictions you need to be aware of here okay so today

we're going to talk though about a few things you need to consider if you're

really thinking about getting this loan or trying to figure out what to do with

it so one thing I definitely want you to

consider is the collateral impact so if you get a loan for more than $25,000 you

essentially are agreeing to put up collateral for that loan it's a business

collateral right but that could be fixed assets that you have that could be

inventory different things like that that you carry as assets for your

business would be considered collateral for that loan they could come take that

collateral if you do not pay that loan so for a lot of people the fact that

there's collateral at that of 25,000 may make you think about okay

maybe I will reduce the amount that I take of the loan which you have the

ability to do so if they offer you

$30,000 all requirements if that's something that you are worried about

okay now I'm going to show you the contract really quick just on the

collateral piece because I think this is important but basically you can see here

that the borrow will will not sell or transfer any collateral except normal

inventory of course because otherwise that wouldn't make a lot of sense

describing the collateral paragraph here of without the prior written consent of

SBA so you're gonna have to ask SBA if you want to sell any of your

equipment if you want to dispose of any of your equipment you're gonna have to

go to the SBA and ask because technically they have claim to that

equipment so that's something to consider for sure okay is the

implications around carrying collateral for your business so the other thing

that I want to make you guys aware of is the fact that you are limited on your

distribution of assets okay so what does that mean that means that the borrower

will not without the prior written consent of SBA you'll you'll kind of see

that a lot here write that prior written consent that you're going to have to

basically ask the SBA hey can I do this and then they have to tell you yes

without that prior written consent make any distributions of assets give any

preferential treatment make any advance by way of loan gift bonus or otherwise

to any owner or partner or any of its employee employees or to any company

directly or indirectly controlled or affiliated with or controlled by the

borrow or any other company you're probably like what in the world does

that say what that seems to be saying and importantly I am hashtag not a

lawyer okay but what that seems to be saying to me is that you if you're a

corp for example this wouldn't really apply in the case of sole proprietors

and LLC's because of the way that you pay yourself it's not quite the same but

if you pay yourself via payroll if you are a quark you should be paying

yourself via payroll you can take those salaries but technically according to

this you would not be able to distribute buuuut owners draw for example during

the tighten you have the loan and for a lot of corpse that could be a huge deal

breaker on this right a lot of you guys maybe take quite a bit of your earnings

in the form of owners draw and I think that the way the SBA this is hey if

you've got enough money to distribute or your earnings which this is it's really

considered kind of more akin to investment earnings than it is payroll

because you don't pay payroll taxes on that part then they're saying well maybe

you should pay back that loan instead so that is something to definitely keep in

mind when you are thinking about taking the Eidl alone think about what that's

gonna mean for how you pay yourself and whether you're gonna have to change

anything with the weight that you pay yourself now remember remember this is

an emergency loan you guys and so I think a lot of people are thinking about

this as a cheap source of capital and it is fairly cheap as far as business loans

go at 3.75 percent interest over 30 years that's fairly cheap but you can't

use it to buy fixed assets okay you can't use it to expand your business

those are things that are very specifically called out that you can't

use it for it to work in capital what is working capital well that's normal use

in your business normal cash usages in your business but not investing

activities not financing activities financing would be paying off long-term

debt investing activities would be growing your business buying Fassett

fixed assets those are things you can't use this for so that's important to keep

in mind when you're deciding do you want to get this loan or not okay so I

promised you guys a freebie go check out above balanceCFO.com/eidltracker

it is a tracker and a calculator that is going to help you

understand the implications of EIDL it's gonna help you be able to see

exactly how the interest works for EIDL how its being calculated out how much

you're going to have to pay over that time period and it's also gonna be a

place where you can track your spending for EIDL because remember there are

some things you can't use this on and it's best to keep record of everything

that you're using the ideal for so let me jump into this tracker quickly and I

can show you kind of how it works okay so now we've jumped into the EIDL

tracker which is also a calculator that's gonna

help you really understand the implications of your EIDL on your

pocketbook and the interest component specifically, all right so let's jump in

here there's only a few pieces of information we need to put in and then

it's gonna tell us a lot so let's put in that we got the loan maybe we got it on

the first of June and the loan amount was for $100,000 okay

now it's gonna shoot out here and say your monthly payment is 489 down here

it's gonna it's gonna calculate that out based on the numbers that you put in

oftentimes that's going to be exactly right in some cases though the way your

payments are rounded might be slightly different so check your paperwork and

see and you can override it if you need to so let's say for 89 wasn't exactly

right and really on the paperwork it said 490 you can override that and make

it 490 okay so then once you put in just these

couple of pieces of information you can come down here to this loan summary tab

and it's gonna tell you a lot okay it's gonna tell you your monthly payments

which we already know it's gonna tell you the interest it's a Curt accrued

during the 12-month deferral period so remember we don't have to pay for 12

months we're not gonna have to make a payment on this loan for 12 months from

the date that we got it but interest is still accruing okay and the way that

interest works it's just like a mortgage that in the beginning because you have

the most principal outstanding because you have a lot of principle that's

calculating interest on your interest is gonna be higher towards the beginning of

your loan then it will towards the end okay so you're gonna see kind of a

front-end weighting of that interest just based on how typical interest

immitation works so this is what you're gonna see so you basically would have

three thousand seven hundred fifty dollars worth of interest that will

accrue during that first year before you've even made a first payment on this

loan okay now that interest will be spread over time you don't have to pay

that all a year from now it'll be spread into your payment it's already

considered in your in your monthly payment amounts but know that you are

accruing interest I think that's something really important to keep a

finger on because some people are taking this loan as an insurance policy they're

not really sure if they're gonna need it they

we'll hang on to it for six months maybe a year see what happens with all of this

COVID stuff and then decide whether they're gonna pay it all back or not

okay and if that's you that's fine but know what that means for you from an

interest perspective and make sure that that makes sense when you compare the

risk versus reward of it and that's gonna be different decision for each

business owner and where are you currently standing your financials okay

okay then you're gonna look and see okay if I kept it the whole 30 years right

which goes through 2050 you guys I hope that strikes some of you as just crazy

because I really don't think these loans while they are 30-year terms they're not

meant to be paid over 30 years okay these are emergency loans that help

believe when you have the cash flow to be able to pay them back you can get rid

of them and remember the things that we talked about previously right where they

can take collateral you might have to actually tell them if you decided to

move your business right you have to get written permission for things as long as

you have this II ideal loan outstanding so you want to make a plan to get this

thing paid off as quickly as you can okay I really fully believe that because

yes you have interest that's accruing and you've also got a situation where

the SBA has say into your business right there are things you're gonna have to do

their records you're gonna have to keep there's things you're gonna have to show

them over time and especially if you get over 25,000 and have collateral right

now you're gonna have to get permission to sell assets and things like that so

this is not a loan that you really want to have out for a long period of time

this is not a typical type of SBA loan to help you build your business this is

to get you back on your feet and get through this emergency and then you

should make a plan to get this paid back quickly okay so that's what I would say

to anybody who has decided to take the loan and they need that extra backstop

it is better than racking up credit card debt okay it is it is definitely a

better solution than that but it is debt and debt is debt so let's look down here

again payoff date is 2050 for 30 years so you're gonna be $70,000 in interest

essentially every dollar you borrow turns into almost

50 that's that's how you need to look at it is that's what that's what you're

doing you're gonna have to pay back almost a dollar fifty on every dollar

that you borrow okay so what if you look at this and you say oh my goodness I did

not realize how much I was gonna have to pay back an interest I didn't realize I

don't want this thing outstanding for thirty years how can I make a plan to

pay it back faster let's do that so there's a couple different options I've

put into this spreadsheet that you can play around with and decide what makes

the most sense but a lot of people maybe took the loan because they could they

took the max amount and they realized shoot I don't want all of this I don't

want all this interest accruing I might want to keep a little bit but not the

whole thing so maybe you got this hundred thousand lump dollar loan and

you said oh my gosh I'm gonna I'm gonna go ahead and return half of it before I

even start spending the thing I'm just gonna get a hand it back and you can pay

it at paid gov that's where you would go to pay off a portion of your loan or the

whole thing you'd go to pay gov so you put in the 50,000 okay then we're gonna

see what happens if that's all you did if you just kind of immediately within

the first month of receiving it pay down 50,000 essentially where what you're

gonna see is that first period you're gonna save $1700 just in that first 12

months by paying back that amount over time now all of a sudden your interest

paid is only $13,000 you guys that's way less attack the money but it's less than

half of the interest payments okay so the amount you're gonna save on those

early payments is fifty six thousand six hundred and thirty nine dollars by just

cutting that amount in half okay so it's also gonna change your payoff date now

we're not talking about twenty fifty anymore right which was just nutty

now we're talking about twenty thirty two still far away but you know in a

reasonable sense you know I'm hoping by 2050 I'm hanging out on an Italian

Riviera I'm not worrying about my Eidl alone right 2032 okay you know life is

probably still somewhat similar to what it is today so that means we would pay

it off within twelve years all right now what if you say you know what I don't

even want this thing for twelve years right I don't I still would like to give

them back maybe you wait and you say okay I'm gonna hold on to half of this

for for six months and I'm gonna see what happens then and

then decide if I'm gonna pay the whole thing back or if I'm gonna pay a portion

back and let's say six months down the road you still have you know used a

little bit of it but you still have quite a bit left over and you realize

you know what I'm not really gonna need this so I'm gonna pay back another

twenty five right now that's again it's gonna completely change your numbers

once again now you can pay anything off in six years if you did that okay so you

can kind of play around with what your early payments look like and see what

that means for you for interest and for the length of the loan additionally what

you could decide to do is you know what I'm actually gonna keep the whole

hundred thousand and I'm gonna keep it but I'm just gonna pay it down way

quicker like instead of paying four hundred and ninety dollars when when

those payments come due next year every single month I'm gonna pay an extra two

hundred dollars to it so I'm gonna pay six hundred ninety dollars and

essentially save 30 grand and twelve years off of this thing okay so it is so

important that you make a plan to pay this thing off you do not want in my

opinion as a CPA I would not want to have that beholden as' from the SBA I

would want my business to be my business and I make the decisions in my business

right so the quicker you can get out of this thing the better and the the less

interest you can pay on this thing the better in most cases right because you

can't use it to grow your business is not an investment in your business in

the same way as other loans may be so I would try to get it paid off

as quickly as you can't I want you guys to make a plan and I don't want you to

make a plan in a year or two years or five years I want you to make a plan now

and use this to make a plan to say okay here's how I'm gonna get this thing paid

off in the amount of time I want to have it paid off all right and then commit to

it and make those extra payments and just make sure that you are keeping up

with that because that will help you that diligence around paying back that

debt helps to make sure that your dream doesn't become

nightmare okay that you aren't saddled with this debt for years and years and

years to come and still trying to get out from under

it right we want to make a plan immediately we want to use this for the

intention it is meant to be which is to get through this emergency and then we

want to pay the thing back additionally you can use this this same workbook to

do a spending log okay so this is really going to be a spending log for you to be

able to write down the things that you've spent EDIL money on okay and

this is great to have in your back pocket if you are ever asked this is not

the same as the PPP where you have to kind of show this schedule to get

forgiven there's no forgiveness here that we're talking about with this Eidl

loan okay but we do need to write down and keep good records in case we're

ever asked to provide them and show what this money has gone towards it also

helps us to keep good diligence around the money so I do recommend putting it

in a separate account that keeps you from having it get commingled with all

your other business funds and then you end up maybe not using it quite as

judiciously as you would if you put it into a separate account and just pulled

as you needed it that's really the best way to use it in my opinion I think

you're gonna make better decisions when you do that versus just kind of putting

it all together into one account and then you will also keep track of it by

saying okay here are the things that I spent the eidl money on okay so this is

a great tracker it's gonna be able to tell you how much you've you've spent

how much you have remaining it's gonna make sure that you actually write in yes

I have kept the support maybe you write a location of where that support is if

you want to you hear what bank account it came out of if you have multiple bank

account that's useful so you could just put the last four digits of your Bank of

America account or something like that and it will help you just keep those

good records you do need to keep receipts for three years at least

according to the loan documents you need to keep good books and records including

the P&L and things like that for a full five years and so make sure that you

have this information readily available this is going to be a great place to

actually be able to document where all your Eidl

has gone okay okay so that's really all I had for you today again go and watch

my other video which is showing on the screen here in a minute

and also make sure that you join my group so I have financial literacy for

women business owners' it is my group we I am answering all of your questions on

stimulus related things over there so if you have more questions or want to see

more content go over there also make sure to like this video and subscribe if

you liked it and I really appreciate you guys being here have a great rest your

week bye bye