Rental Property Investor · Los Angeles · Member since 2019 · 284 posts · 184 votes
So I just got approved for $150k SBA EIDL under my design biz (not real estate related biz). Terms are 3.75% interest rate w/ 30yrs to pay. $731/mo (P/I).. First payment does not start until after 12mos from disbursement date. Sounds too good, but there's limited use of funds. I'm still receiving $10k/mo salary through my biz so this will help because I need to maintain my W2 so I can still qualify for loans to buy real estate. But not sure where my design biz will be for the next 30yrs... it is a slow crawl right now due to COVID19 and almost feels like i have to start all over. Of course, my mind goes straight to finding ways to use funds and invest in RE somehow... but I don't think I can take the draw all at once. That said, it's been a week since approval and offer... but I still haven't pulled the trigger to sign the note.
What would you do if you were in my shoes? If you have gotten the EIDL, I would love to hear your thoughts and perspective.
I got the $150K back in May and just sat it in a deposit account. Do NOT turn down cash right now, you simply don't know if the stuff is going to hit the fan. It has no effect on your ability to refinance or sell but play by the rules it was intended for. Your properties secure the loan.
It is targeted for operational expenses you cant meet due to Covid. That means you could fix a broken window under it but you couldn't use it to replace all the windows in your building. No improvements.
If there is no second wave, or you are fortunate enough to always have paying tenants, then simply pay it back anytime. Go to SBA.gov for more.
I applied and was offered $2,500. This is enough to help pay some bills (property taxes, insurance, utilities, landscaping, repairs) while I have a couple tenants who are behind on rent, but that's about it.
@Dawn A. I applied through my design biz months ago through SBA website portal... along with PPP. Missed the window the first time on EIDL because they ran out of funds ... but i got approved for $25k PPP. Last week I got an email last week saying i got approved for $150k EIDL.
Sadly I don't have an answer for you. I applied in the beginning and didn't hear anything for months. Then all of a sudden they started calling like crazy and emailing. Wanting me to fill out more forms on their portal. I thought for awhile about what I could do with it, but in the end decided to withdraw my request. I can limp by still, not to turn into "that guy" but one thing I have learned through this is that they can and will change the rules we are playing under at the drop of a hat. Sounds great a decent sum of money at 3.25% interest over 10 years etc. In 4 months they can send out auto audits and demands. You spend funds on something they said was valid today and they will change it to "Can't use it for XYZ, if you do it is now a 12% interest loan".
@Mike Cumbie interesting perspective. Definitely something I worry about and has crossed my mind. The note and disclosures do state specific use of funds. If they change anything on the fly, wouldn’t that be breach of contract?!
Verify the offer is legit for sure. Are you positive this is from SBA?
I got $10k for my mgt s-corp. Anything $25k or less had no collateral or personal guarantee requirement but I do have to keep track of what I spend the money on. It can't be used for improvements or expansion, just op expenses.
The devils in the details. I wouldn't pledge for what I don't absolutely need.
Verify the offer is legit for sure. Are you positive this is from SBA?
I got $10k for my mgt s-corp. Anything $25k or less had no collateral or personal guarantee requirement but I do have to keep track of what I spend the money on. It can't be used for improvements or expansion, just op expenses.
The devils in the details. I wouldn't pledge for what I don't absolutely need.
Yes... I've actually gotten on the phone and verified its SBA. And it does require collateral if over $25k (but only limited to what the biz owns - equipment, inventory, etc... not RE collateral). Personal guarantee requirement for sure. I have enough in reserves to cover this so its not a huge concern. I don't plan on going out of bounds on use of funds. But the language about audits and maintenance of records requirements (at my expense) is one of the things concerns me... sounds like a pain.
By the way, Do you know if salary (to biz owner) is within use of funds? That part isn't clear to me.
interesting perspective. Definitely something I worry about and has crossed my mind. The note and disclosures do state specific use of funds. If they change anything on the fly, wouldn’t that be breach of contract?!
I suppose. I look at how they treated unemployment in my state. I communicate with many people who have gotten it. The claiming has changed, who what when where why. Must jump this hoop and then change and must me declined from here first. I have talked to people who have had deposits and them had them pulled back out. Some no approval since March, gotten the money then told they no longer qualified because of some June change.
It may be a breach of contract, I don't have the funds to get into a legal battle with the state or feds. I am sure there is some language in there that they can come back on. If not they have you on the radar. I didn't get to any of the fine print and it may be a perfect option for your business, not saying it isn't at all. Just for me the reward wasn't worth the risk.
I got the $150K back in May and just sat it in a deposit account. Do NOT turn down cash right now, you simply don't know if the stuff is going to hit the fan. It has no effect on your ability to refinance or sell but play by the rules it was intended for. Your properties secure the loan.
It is targeted for operational expenses you cant meet due to Covid. That means you could fix a broken window under it but you couldn't use it to replace all the windows in your building. No improvements.
If there is no second wave, or you are fortunate enough to always have paying tenants, then simply pay it back anytime. Go to SBA.gov for more.
@Mark H. Porter thanks for your response. Do u know if salary (to self/owners) is considered qualified use of funds? The language is unclear to me. I know bonuses, vacation pay and such are not allowed.
Best to call SBA. Salaries are considered operational expenses but owner distributions are not. IN other words, and please confirm this, if its a salary for you working for the company it may be acceptable. However, if you are taking an owner distribution to pay off your personal credit cards it would not.
Or....just simply use other business revenue to pay your $$ and leave the $150K to pay unquestionable expenses.
Just a thought but approval for $150,000 doesn’t mean you have to take it. My primary business was also approved for that amount but I took significantly less because it wasn’t necessary. I also took PPP and applied for a state grant.
If it is legit SBA EIDL, there is a “slider” in the application process. It’s been a while since I applied so you may be beyond that stage. Like another poster said, if things look rosy in 12 months, you can always pay it back. Even if you are past the slider, I’m sure SBA could loan a smaller amount if you called.
@Alvin Uy talk to your CPA. I was approved for Both the PPP and EIDL for my Architecture firm. The PPP was approved first in April and the EIDL about a month afterwards. I spoke to my CPA and he informed me not to take the EIDL unless absolutely necessary. I declined the EIDL. I forgot all his reasons but it had something due to with affecting the full forgiveness of the PPP. Of course this was back in May and things have changed.
The EIDL should not be used for outside purposes other than in your design business. The 1st fraud case was about someone using EIDL to buy a house (funny but that really happened and he was indicted). Who knows who will get audited, prob <1-2% BUT when signing, you are attesting you will not use for any other purposes. If you do, the SBA considers that gov’t fraud.
Re: payroll, if you did not offset with PPP and you are maintaining normal wage level (assume you are an S corp), not using for dividends, that should be OK. Of course, run your facts by your CPA/tax advisor!
We happen to be in the same situation with our (non real estate) business. The nice thing is, we have been approved and have sixty days to decide whether or not to accept the loan.
On one hand, we were encouraged to take the money because, even if we are doing alright right now, all it will take is another wave or two to send everything hitting the fan again.
On the other hand, if you were to set that money in a separate account (which is HIGHLY recommended whether you use the funds or keep it sitting), that's $5,625 in interest, which I'd rather not pay if I don't need to.
If your business can stomach a $6000 insurance policy (that's how I look at it), by all means take the money. Our business is teetering on the edge of not wanting to take the money because that way, we have significantly more freedom when it comes to aggressive loan payment, potential owner draws, and just less stress of another lien on our business.
@Kamyar Dastani thanks for the perspective. $6000 “insurance” for $150k seems negligible to me especially since its 30yrs to pay. I have the note and have until September to make a decision.
@Alvin Uy Because you, nor I, know the extent of this pandemic or possible looming financial crisis, I believe it is better to have reserves. I was offered the same amount for the EIDL loan. I checked with my CPA who encouraged me to take it. So I withdrew all my emergency fund/reserves for that business and put it in my checking account and I put the EIDL loan funds into the savings accounts. I plan on just keeping it there for the duration of the loan as my reserves.