In an interview with The Business Journals earlier this week, SBA Director Isabel Guzman was quoted as saying that the agency is now working on the technology upgrades needed to increase the EIDL loan limit up to $2M.
Earlier this year, the agency increased the limit on EIDL’s from $150K to $500K. Sadly, she didn’t say much more than that.
Before all of you get too excited, let’s take a moment to review.
EIDL’s are not forgivable loans like the PPP. They are regular 30 year amortization loans repaid at a rate of 3.75% interest.
If you choose to get an EIDL there are many restrictions that go along with them, including but not limited to…
1 – An EIDL cannot be used to pay off old debts.
2 – You cannot use the proceeds to refinance existing debt
3 – The proceeds cannot be used to purchase new capital assets, new construction, or vehicles
4 – A company that has an EIDL cannot issue dividends to shareholders or bonuses to workers
5 – Owners and shareholders cannot take distributions or draws except for the payment of ordinary work
6 – Loan proceeds cannot be used to repay shareholder loans
These are just a few. There are more.
The agency hasn’t shared any information on their process of underwriting the loans. The initial loan application only had two qualifiers; those being your gross sales and cost of goods sold. I have no idea how answering those questions would actually lead to the agency knowing what the economic injury to the company was so that they can determine a lending amount.
That was, after all, the intended purpose of the Economic Injury Disaster Loan. It’s supposed to cover an economic injury so that a company can get back on its feet.
Stay tuned. There’s more to follow on this continuing story.
Let me leave you with this.
Over-leveraging your company is never a good thing. The first companies that went out of business during the real estate recession were the ones owned by the twenty-eight-year-old MBA’s who used to lecture me on how debt was actually good.
I wonder what Starbuck’s they’re working at today?
Increasing any loan must only be done after careful consideration. I happen to have a rather Eastern philosophy when it comes to debt.
One should only go into it after they have figured out how they will get out.
The EIDL may sound like a good deal, but once you consider all of the restrictions, it may not.
I feel like I’m beating a dead horse, but there are so many people who still don’t know about the Employee Retention Credit. I just got off the phone with a guy in the audio / visual business with five employees near Midway, who had never heard of it.
The best thing about the ERC is that there are no strings attached. PPP money had to be spent in a particular way or it wouldn’t be forgiven. EIDL money has more restrictions than I can remember.
But you can do anything you want with ERC money. You could buy a Maserati, and no one could say a word.
If you haven’t signed up for our Employee Retention Credit Consulting and Preparation program, please click the button below and begin the process today.
I can’t wait to see you walk into the dealer to say, “I’d like the red one please.”
We’re all going to get through this. Let’s get through it together.
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