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Penalties for Diasater SBA Loan FRAUD

Updated: Jul 6, 2020

There has been a surge in SBA loan fraud (first case May 5, 2020), and because of this the SBA would like to remind the public that SBA Loans are not FREE MONEY? Those on the street, along with unscrupulous tax preparers or accountants, have been taking advantage of those desperate for cash flow during the economic strain the covid-19 pandemic has caused. They have provided misleading information such as,

  • Saying the loans are free money because they are forgivable.

  • Providing false tax documents to help those not qualified to qualify for the loan, or to overstate their expenses to qualify for larger loan amounts.

  • Charging anywhere from $2,000 up to half of the approved loan amount claiming to have the magic formula to get someone approved for the loan by lying on the application.

There is no Secret Formula.

If you are a true business owner with employees or self employed as a sole proprietor, the chances of getting approved is very likely because they have made provisions for most income categories. The applications are FREE on the lender's website for the PPP Loan, and on the SBA site for the EIDL Loan.

Loan Forgiveness.

The loan forgiveness for the PPP loan is not automatic. You have to meet the criteria and apply for the 2nd step. You will need to prove how the money was spent, have the financial and tax documents to back it up, and fill out the forms.

Is it still fraud if I intend to pay it back?

Yes. Loans come with terms and conditions between the borrower and the lender. You agree to those terms and conditions when you apply and sign the documents. You also agree that all the information you provided is true. When you through the verification or auditing process, you can potentially get flagged for Federal Loan fraud if you can't back up what was on your loan application, or if you didn't follow the rules about keeping records on what you spent the money on.

What are the Penalties?

Whoever wrongfully misapplies the proceeds of an SBA disaster loan shall be civilly liable to the Administrator in an amount equal to one-and-one half times the original principal amount of the loan under 15 U.S.C. 636(b). In addition, any false statement or misrepresentation to SBA may result in criminal, civil or administrative sanctions including, but not limited to:

1) fines and imprisonment, or both, under 15 U.S.C. 645, 18 U.S.C. 1001, 18 U.S.C. 1014, 18 U.S.C. 1040, 18 U.S.C. 3571, and any other applicable laws;

2) treble damages and civil penalties under the False Claims Act, 31 U.S.C. 3729;

3) double damages and civil penaltie

s under the Program Fraud Civil Remedies Act, 31 U.S.C. 3802; and

4) suspension and/or debarment from all Federal procurement and non-procurement transactions. Statutory fines may increase if amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

Why do these types of loans come with so much regulation? Well, these are loans funded by the Federal Government, which is funded by taxpayer dollars and not private dollars, as with Banks, or credit lines, as with credit card lenders.

The CARES ACT funded the Disaster Loan Programs.

The Disaster Relief Fund (DRF) is one of the most-tracked single accounts funded by Congress each year. Managed by the Federal Emergency Management Agency (FEMA), it is the primary source of funding for the federal government’s domestic general disaster relief programs. Lying about being a disaster victim ties up funding to address those who really are, and it also limits the available amount to address natural disasters such as storms, floods, etc.

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