SBA Business Loan Scams

by Paul Davis

Beware of private companies offering to help secure SBA funds or loans. Some firms are legitimate but many more may be scam artists. Find out how to protect your business.

Paul Davis
On Crime & Security

The U.S. Small Business Administration (SBA) has issued a warning to small business owners that they should use caution if and when they are contacted by private firms that offer to help them secure money through SBA programs.

The SBA and the SBA's Office of the Inspector General (OIG) have received complaints from small businesses about some of these private firms using abusive marketing practices and scams, as well as charging exorbitant fees, to help them obtain a loan, grant, or other federal funds from SBA.

According to the SBA, the complaints include:

  • Firms charging small businesses high fees to provide assistance applying to SBA funding programs. Some firms allegedly guaranteed that the small business would obtain SBA funding if they paid the fee. SBA does not endorse or give preference to specific private companies or their clients.
  • Firms charging small businesses for services never requested after the small business gave bank account and routing information to a caller claiming to be a firm offering assistance. SBA recommends that small businesses never provide social security numbers, bank account information, or credit card numbers to anyone; and, never over the telephone.
  • Firms alleging that a small business would be issued a "forfeiture letter" that would make the small business ineligible for any SBA funding for three years if the small business refused to use the firm's services.

I contacted the SBA and asked if offering to assist a small business in securing an SBA loan for a fee was a crime?



"No, several legitimate businesses offer application assistance," replied Peggy F. Gustafson, Inspector General, Office of Inspector General, U.S. Small Business Administration. "We issued the warning to make sure small businesses were sensitive to some possible abuses that were being reported to us."

I also asked if anyone been arrested or prosecuted for this and Gustafson said that they don't discuss open matters, but small business owners can be assured that the OIG takes all of these complaints seriously. She said that the purpose of the released notice was to head off as many of these cases as possible.

"In one of the more egregious cases, a small business owner was threatened with a so-called forfeiture letter that would allegedly make the business ineligible for SBA funding if the small business owner did not purchase application assistance," Gustafson said. "Private companies cannot do that."

Has any small businesses recouped any money from these scam artists, I asked?

"We are not aware of any small businesses getting money back from scam artists. That is why it is so important for businesses to know which companies they are dealing with and establish what they are being charged, when they will be charged, what they must do and what services they will receive," Gustafson explained. "Our notice identifies SBA resources available to small businesses. Remember to also check with trusted colleagues or other sources of information such as the Better Business Bureau."

The SBA advises that small business owners keep in mind the below when considering or electing to use a third party to apply for SBA funding programs:

  • Small businesses can get free assistance in person or by calling one of SBA's 68 District Offices and from information on SBA's Web site (www.sba.gov). They can also get assistance from Small Business Development Centers, Women's Business Centers, Veterans Business Outreach Centers and SCORE Chapters, either free or for a reasonable fee. Location and contact information for the centers can be found on SBA's Web site.
  • Small businesses should ask for references and confer with trusted colleagues and institutions, such as the Better Business Bureau, when selecting service providers.
  • Small businesses should clearly establish and document: 1) What they are being charged; 2) When they will be charged; 3) What they must do; and 4) What services they will receive.

The SBA's Office of the Inspector General will investigate and respond to all complaints. The SBA encourages anyone with knowledge of a misrepresentation regarding SBA Business Loan Programs, or any other SBA program, to contact SBA OIG by calling the OIG Hotline toll-free at (800) 767-0385, or submitting an online report at the SBA OIG Web page (www.sba.gov/ig), and click the link for "Report Fraud Waste or Abuse."

Anyone who has a question regarding an SBA loan or any SBA program may contact their local SBA District Office, the SBA Answer Desk at 1-800-U-ASK- SBA (1-800-827-5722) or e-mail answerdesk@sba.gov

"The OIG will investigate and seek criminal prosecution of parties that commit fraud in SBA lending programs," Gustafson said. "We also endeavor to limit any other fraud, waste or abuse in SBA programs by working with the SBA, the Department of Justice and other Federal agencies to use criminal, civil and administrative remedies to protect taxpayer dollars."

About the author: 
Paul Davis is a writer who covers crime & security for newspapers, magazines and the Internet. He can be reached at pauldavisoncrime@aol.com

Paul Davis on Crime & Security

 
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