EIDL - Loan Increase

[Matt Inouye]

Hey BP Community

I had a question regarding the EIDL loan from the SBA.

Business partners and I received an email from the SBA notifying us that our business (non RE related S-Corp) is eligible to receive an increase in our EIDL loan. We originally used the original loan to maintain payroll and other business expenses during 2020. We have the ability to request up to $500,000 total loan amount (for 2021) and are wondering about downside risks before requesting an increase in loan amount.

Would there be tax/legal liability if the increased loan amount is used to pay for the business's salaries and operating expenses while the natural revenue from the business solely went to shareholder distributions.

Business owners realize they would be paying higher taxes due to higher shareholder distributions.  Basically they would be paying more taxes today but possibly less/no taxes in future years since any excess revenue from the business will be going to debt service/repayment instead of shareholder distributions.

The main goal here is to pull-forward any future value from the company while not creating unforeseen tax or legal liabilities for the business or owners.  Also to limit the tax liability on the individual side, there will be a large amount of cost-seg (from outside RE investments) that could be used against the higher shareholder distributions from the business.  

Thank you in advance and I appreciate any insight from the BP community 

Aloha,

Matt

[Greg O'Brien]

@Matt Inouye be careful on expansion or using the capital to buy RE. SBA 7A loans are not new and have strict covenants. The SBA has and will audit.