Got an $150K EIDL offer - should I take it?

Buying & Selling Real Estate

Got an $150K EIDL offer - should I take it?

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.

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Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

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.

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Joe Cassandra
Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
6y
Everyone should apply regardless. You get 1k per employee regardless if you get approved or not.

that 1k is not a loan but essentially free money.

we got a 55k loan for my non re biz and got the 1k. (Sole proprietorship marketing biz)

applied with RE biz, was declined. My wife and I are 50/50, they shipped us 2k. No papers to sign
0 Reply
Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
6y
@Alvin Uy the money received can only be used for certain things. By receiving the money, you are opening yourself up to an audit of your accounts. The bank requires me to have reserves of at lease 150k as part of my covenants for some of my portfolio loans. Therefore, it becomes a very easy paper trail to see the one deposit and the one transfer for the audit. Now there will never be a question as to wether I used the money according to their guidelines or not. So basically, I took my emergency reserves and used them as operating capital and I replaced them with the EIDL funds.
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1 Reply
Alma Mills
Real Estate Investor · Los Angeles, CA · Member since 2013 · 98 posts · 48 votes
6y
@Alvin Uy they offered me 78k for my mailbox store but I only took 10k because I didn't have an immediate need for that amount and wasn't sure about the strings attached.
A big question is what would you do with the money. Do you have a deal you have been wanting to do? If so and the numbers are good might be a great idea.
1 Reply
Mark H. Porter
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
6y
@Alma Mills that’s a sure-fire way yo end up in the pokey. It cannot be used for capex or to buy another tangible asset. Only operational expenses and those impacted by covid.
3 Reply
Bruce C.
Seabrook/Galveston · Member since 2018 · 274 posts · 178 votes
6y
@Mark H. Porter
Agree on using it to buy a new property being a big no. It can be used for repairs though. If you purchased a fixer upper with your own money, wouldn’t replacing broken windows, rotted wood, etc be necessary repairs for continuing to run your business?
1 Reply
Mark H. Porter
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
6y
if you are repairing an unusable function then it would be a repair. I know you mentioned broken windows, but just for clarity, if you're replacing all the windows because you don't like them then it would not. Same with a roof, if you replace it because it is leaking, that's a repair. If you replace it because it's just worn and tired then that would be capex.
1 Reply
Mike CumbieBusiness Member
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
6y
@Bruce C.
The penalty for misuse of funds is 150% of the original principal loan amount, as well as federal charges. So if you took a 150K loan and they disagreed with your stance, it is literally a federal case and a penalty of an extra 75K.
As far as buying a house with your own money and your "Business" fixing it up it's a pretty big no. Words to the effect: Borrow will not directly/indirectly distribute any of borrowers assets to any person with an ownership interest in the company. Read through the promissory note, they aren't playing around with it. You authorize them to run audits at your expense as well as inspections and appraisals of any of your assets.
There are plenty of places to jump into loophole land, I wouldn't try with this loan myself. If I was getting it I would use it exactly as intended. They are going to need a way to pay for this mess and fining "Rich Business Owners" for misusing funds isn't going to have a lot of opposition IMO.
3 Reply
Mark H. Porter
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
6y
I think the key here is this is not to make you "better" than before Covid, just "whole" if you are impacted. I remember when I completed the application they asked for COGS and what my projected losses were. I forgot what I wrote but if I don't suffer any projected losses, and therefore do not need to be made "whole", I will simply send it back.
1 Reply
Michael C.
Investor · Columbus, OH · Member since 2015 · 61 posts · 29 votes
6y
What ever you do, don’t be like this guy smh
https://www.cnn.com/2020/07/28/us/ppp-funds-miami-lamborghini-trnd/index.html
2 Reply
Account Closed
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Alvin Uy
You have to make the decision for yourself, but keep in mind, while you may not need it at the moment, who the h*** knows what's going to happen from now until next Spring. I would rather have the money and not need it, then need it and have to try and get approved in the next middle of another crazy covid lockdown with moratoriums in place. Also, there is no prepayment penalty so you can just pay it back if you don't need it.
1 Reply
Calvin Thomas
Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
6y
I'd take it if I was you. Keep it in a separate account. It's best to have it tap then not at all. You can always return it after the COVID-19 issues settle.
1 Reply
Alvin Uy
OP
Rental Property Investor · Los Angeles · Member since 2019 · 284 posts · 184 votes
6y
Seems like there were more upside than downside. I can always give it back since theres no prepayment penalties. So I decided to take the plunge and signed the loan docs earlier today. I have it going directly into a newly opened checking account. Planning on holding on to it as emergency fund... plus use some for operational expenses (payroll, rent, etc). We’ll see how this goes. Curious how long it takes to transfer funds
0 Reply
Mark H. Porter
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
6y
It was a couple of weeks
0 Reply
Rick BassettBusiness Member
Property Manager · Greater New Haven, CT · Member since 2010 · 377 posts · 434 votes
6y
We applied when the program first came out and didn't hear anything for 3 months and then got an offer for a EDIL loan @ 3.75% for 30 years for $100k...yep took that, didn't have to ask me twice.
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