International Law

SBA Conceals Massive Loan Fraud

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Keith Girard, writes at All Business, about the Small Business Administration program and fraud.

"More than 60 OIG reports over the past five years have hammered the SBA about poor lender oversight and the potential for loan fraud.

But in an outcome that's all too familiar in light of the SBA's Katrina disaster, the agency failed repeatedly to follow up on the recommendations.

To the contrary, in the face of withering Bush administration budget cuts (reducing SBA staff by 25 percent), the agency delegated almost all oversight to the major lenders themselves, or third parties."

The SBA is a critical gatekeeper because it funds, for example, construction loans for franchisees.

Typically, much mischief can happen in ordinary contracting - as anyone who has had their kitchen renovated knows.

Small budgets become larger, and then insanely big.

The SBA has to perform a gatekeeper function making sure that a) the construction costs are backed up with invoices, and b) the overall business plan is not drafted on air.

My concern is with some of the SBA loan packagers who write business plans for the SBA approved lenders.

How can an SBA loan packager write a business plan, which would be an Item 19 earnings claims, for franchisors who omit in their FDD an item 19 disclosure?

This strikes me as a very dangerous practice, something that I want to look into in more detail.

If you are a franchisee, using one of these SBA loan companies, what did you think of the business plan that they wrote for you?

Full post as published by Misleading Advertising Law on August 12, 2008 (boomark / email).