Getting The EIDL Loan

With some perspective and some mushy memories, I'm better able to describe to the narrative of the EIDL loan process I went through in April of 2020. Having survived the 2008 housing crisis and not getting my house in order until 2010, I made this a massive priority to educate myself on this loan and be first in line. Some people camp out at Best Buy on Black Friday, I have Google alerts for SBA portals and hit refresh a lot. 

I wanted in first, because being the government, they would: a) run out of money, and b) there would probably be a first mover advantage in scrutiny, meaning they may be too overwhelmed to make good judgements or might implement new rules later, after they ran into problems. As it turns out, I have stellar credit and they really wanted to give me money, which was a bit of a problem.

When I was approved for the loan, they offered me an enormous amount, over a quarter million dollars. I was applicant number 10,000 or something. I was early, I understand finance and paperwork, and they had a lot of money. Eventually they would run out of money and limit loans to a smaller, more reasonable amount. Once I was approved, they offered me a villa in Mexico amount of money. I asked them if I could just take a smaller amount. They told me not to worry. I don't know where this will go, and I can just take what I need, like a line of credit. That made me happy. I can manage a line of credit. But that much money? Are bank accounts even insured for that much? 

They are not.

Then they just dumped the whole amount in my bank account. No line of credit. That's when I learned there are SBA contractors just kinda winging it. So wow! All the money I could ever ask for, business wise, for my completely shut down business that may never open again. I was thinking Guanajuato or maybe the outskirts of Oaxaca. With so little faith in the government and the pandemic raging (really just getting started), I had one foot in Mexico while trying to restart the business. 

And then they came back and asked for something I read about but didn't fully understand. They needed a property lien on everything the business owned, but they needed me to file that with the state. That took a day of figuring out, but it let me read about the "hooks" involved in this loan, and to better understand the requirements.

By the simple loan language, I can't pay myself dividends. Really? Ever? It's a 30 year loan. Are businesses with an EIDL loan over their head forbidden to ever realize profit? Oh, well you just can't pay them with the EIDL money. So if my business makes $5K this week and I use it to pay investors while I borrow $5K from the EIDL fund for allowed expenses, everything is fine? Exactly. Just show a paper trail. Then there was the car. I needed a car to do deliveries. Doing the research the EIDL loan was fuzzy about capital expenses. Ask a lawyer and they interpreted that as allowed. You can buy a car. Ask an accountant and it was certainly not allowed. The accountant had a different understanding of capital expenses, probably one more in line with the government, since it's their job. I bought a car anyway and made $57,000 in deliveries.

My final understanding was this: If you pay back the loan, nobody cares. Nobody is going to look at your delivery vehicle and send you to prison (an option), if you pay back your loan. Don't pay back your loan and there will be scrutiny and open books and questions about everything. So the answer is win, don't lose. And if you think the SBA is clear in their writing or understanding of how the law is supposed to work, talk to Congress about that. They've been yelling at the SBA for nearly a year now. And with todays shenanigans for EIDL disaster grants, I'm sure they're just getting started.