The New York Times reports that Business Loan Express is the focus of a growing investigation by federal regulators that it originated loans for the SBA based upon fraudulent information. This investigation, first initiated in 2004, highlights both a lack of appropriate financial controls at both Business Loan Express and the SBA.
Why would the finger be pointed at the SBA? Business Loan Express, owned by Allied Capital Corporation, has been an approved "preferred lender" authorized to originate loans for the SBA without submitting those loans in advance for approval. The NY Times points out that members of the program have undergone an exhaustive examination prior to becoming a preferred lender and as a result, virtually none of their loan applications are examined in advance by the SBA’s district or regional offices. While the SBA does conduct random audits of all loans it guarantees, it is a post funding audit which provides a lot of room to defraud the system before a perpetrator might be caught.
If there are guilty parties at Business Loan Express, punishment of both individuals and the organization will be handed out. The bigger issue are the actions that might be taken by the SBA to prevent such abuses in the future. Any response will affect not only the preferred lenders who played by the rules, but ultimately the borrowers who might see not only an increase in delays to obtain an approval, but possibly increased costs and fees to account for the higher perceived risks.
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Related Tags: SBA, New York Times, Business Loan Express, Preferred Lender, Allied Capital
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