What is the Penalty for Lying on an SBA Loan Application?
The Small Business Administration (SBA) provides loans and other assistance to small businesses across the United States. Lying on an SBA loan application is a serious offense that can lead to federal criminal charges and penalties. This article will provide an overview of SBA loan fraud, the potential criminal charges, and the penalties someone may face for falsifying information to obtain an SBA-backed loan.
What is an SBA Loan?
The SBA works with banks and other lenders to provide financing to small businesses that may not qualify for traditional loans. The most common types of SBA loans include:
- 7(a) Loans – The SBA’s primary loan program for small businesses, used for various business purposes including working capital, equipment, and real estate. The SBA guarantees a portion of the loan to the lender.
- 504 Loans – Used for major fixed assets like real estate or equipment. The SBA guarantees a portion of the loan from a certified development company.
- Microloans – Small short-term loans up to $50,000 from non-profit lenders, used for working capital, supplies, furniture, fixtures, machinery or equipment.
- Disaster Loans – Low-interest loans to businesses affected by natural disasters. Can be used to repair or replace damaged property.
The SBA doesn’t lend money directly for most loans. Instead, it sets guidelines for loans and guarantees a portion of the amount to reduce risk for lenders. This makes it easier for small businesses to qualify for financing.
What is SBA Loan Fraud?
SBA loan fraud occurs when someone intentionally lies or misrepresents information on an application or supporting documentation to obtain an SBA-backed loan. This could include:
- Overstating income, assets, or collateral to qualify for a larger loan amount
- Understating debts or liabilities to appear more creditworthy
- Falsely claiming to have certain educational degrees or professional licenses
- Misstating the number of employees
- Providing false tax returns or bank statements
- Lying about the intended purpose of the loan proceeds
Even if the business fully intends to repay the loan, misrepresenting any information to influence the SBA or lender’s decision is considered fraud.
Why is SBA Loan Fraud a Crime?
Lying on an SBA loan application is a federal crime because these loans are backed and guaranteed by the U.S. government. SBA loan fraud ultimately cheats taxpayers and takes money away from legitimate small businesses in need of assistance.
Several federal laws prohibit false statements or misrepresentations involving SBA loan programs. Prosecuting loan fraud helps deter others from trying to illegally obtain SBA-backed financing.
What Criminal Charges Apply to SBA Loan Fraud?
There are a number of federal criminal statutes that can apply to SBA loan fraud, including:
False Statements (18 U.S.C. § 1001)
This law makes it a felony to knowingly make false statements or use fraudulent documentation in any matter within the jurisdiction of the federal government. The maximum penalties are 5 years imprisonment and a $250,000 fine.
SBA False Statements (15 U.S.C. § 645)
This statute specifically prohibits false statements to the SBA, punishable by up to 2 years imprisonment and a $5,000 fine.
Bank Fraud (18 U.S.C. § 1344)
Bank fraud charges apply when someone lies to a financial institution, such as an SBA lender, to influence a loan decision. Penalties can be up to 30 years imprisonment and a $1 million fine.
Wire Fraud and Mail Fraud (18 U.S.C. §§ 1341 and 1343)
If any interstate wire communications (phone, internet, email, etc.) or mail is used to further the fraud scheme, prosecutors can add charges of mail and wire fraud, each punishable by up to 20 years imprisonment and significant fines.
In addition to direct fraud charges, prosecutors can also charge conspiracy to commit fraud or make false statements. There may be other charges relating to money laundering or making false statements to federal agents if those activities occurred.