I Went to Prison for S.B.A. Loan Fraud, by Jeff Grant, J.D., M.Div.
7 Things to Know Before You Take Coronavirus Disaster Relief Money
In the months after 9/11 I was frantic. My business was already failing because of ten years of rampant prescription opioid abuse. In my desperation I saw what I just knew would be the way out of my problems. The television and radio were blaring with ads for 9/11 FEMA loans administered by the U.S. Small Business Administration, so I lied and said I had an office near ground zero. I received the SBA loan and immediately repaid my personal credit cards that I had run up waiting for the SBA loan money. But the loan did little to stop my descent into drug addiction, mental health issues, marital problems and magical thinking. In 2002, I resigned my law license and started on the road to recovery. It all caught up with me about 20 months later when I was arrested for the misrepresentations on my loan application. I served almost 14 months at a Federal prison for wire fraud and money laundering.
My ministerial objective in writing this piece is not to be negative; rather, it is meant to be positive, important information for businesspeople to consider before they take out disaster loans. Certainly, the majority requesting these loans are honest, good, and upstanding businesspeople who can demonstrate great need for these loans and will use them properly. I am very glad there is help for them. That said, experience shows us that many well intended businesspeople will make mistakes and wander into big trouble. If they are more aware in advance, perhaps they will avoid both the mistakes and the consequences down the road. There are those too who will try to bilk the system — perhaps a few things in this article might dissuade them from taking that path.
- Desperate People do Desperate Things. There were thousands of fraud prosecutions after 9/11, Hurricane Katrina, Superstorm Sandy, etc. Why? Whether because of overwhelming business issues, poor personal judgment, or just plain bad luck, people were wounded, desperate and were willing to do anything, anything, to stop the bleeding. But what good is putting a band aid on a such a deep wound? Practice point: As in any situation, behaving desperately is unlikely to save your business.
2. Misplaced Belief that the Rules are Suspended in Times of Emergency. The government is already advertising that huge amounts of money are available to save our businesses. I recently sat in on a webinar run by a very reputable business consulting group that recommended that attendees get their SBA disaster loan applications in immediately, regardless of the facts or the need — they said we could always modify our applications prior to taking the money. State unemployment websites are actually giving instructions, in writing, on how to mislead and circumvent the system in order to get approved. Don’t take the bait! If you default two years from now, this “good-meaning advice” won’t matter to prosecutors. Practice point: tell the absolute truth at all times!
3. Magical Thinking — Entrepreneurs Beware. This is a tough one because entrepreneurs are inherently optimistic. We believe that things will always be better tomorrow than they are today. It drives us, makes us successful, informs our risk taking. But in times of trauma, that voice can be an entrepreneur’s worst enemy. Does this sound familiar? We have learned the hard way that there is no short cut, and yet we desperately want there to be one right now. Practice point: Instead of reacting and immediately reaching out for a bailout or other quick fix, develop a good solid business plan. Maybe a disaster loan will fit into this well constructed plan, maybe it won’t.
4. This Paradigm Shift Affects All Small and Midsize Businesses. We are in the midst of a massive reordering that already has a huge effect on small and mid-sized businesses. Business owners are being called to closely examine if our business models are still viable, or if we must pivot to new ways of doing things. Example: the Swiss watch industry completely missed the shift to digital watches. Have we waited too long to have a robust online presence? Are our products or services even needed any longer? Have we been holding on by a thread for years unwilling or unable to look at the problems? Practice point: Get real, and now. Don’t borrow money to save a business that can’t be saved.
5. Borrowing from the Government. As is the case with any loan, the devil is in the details. The terms and covenants in the loan documents dictate what you can or can’t do with the money once you get it. You can only use the funds for the purposes you stated in your application — that is, to pay operating expenses of the business to keep it afloat until it recovers and starts bringing in sufficient revenue again. You (and your spouse) will probably have sign for the loan personally, and will probably have to pledge all available collateral — including a second (or third) mortgage on your house. If you borrowed to the max on your personal credit cards in eager anticipation of your disaster relief funding, you can’t use the money to pay off your cards. Practice point: Read the terms and covenants of the loan closely. Whatever the loan terms say to do, do, and whatever they say don’t do, don’t do.
6. We Can’t Save Our Businesses and Our Lifestyles at the Same Time. Here’s the big trap. We have mortgages, car payments, school tuitions, and other personal expenses that have to be paid, and soon. Simply, SBA loans are meant to save your business, not your lifestyle. Discuss all your options with advisors and friends you trust — the ones that will tell you the truth! It’s like going to the doctor. Your diagnosis will only be as good as the history you provide. These are trying times, with a triage system designed to be more expeditious than thorough. Practice point: There is no such thing as a free lunch — with borrowing money comes responsibility and accountability.
7. Getting into Acceptance. I hope we are all great businesspeople and can figure out ways to make our businesses survive and flourish. But let’s face it, for some us of our businesses will not get better despite the infusion of government funds. What should we do? We can pare down, embrace the change and do things differently. We can look forward to a new, fuller, more abundant life. Practice point: Sometimes less is way, way more!
Jeff Grant, J.D., M.Div. is an ordained minister with over three decades of experience in crisis management, business, law (former), reentry, recovery (clean & sober 17+ years), and executive & religious leadership. Sometimes referred to in the press as “The Minister to Hedge Funders,” he uses his experience and background to guide people faithfully forward in their lives, relationships, careers and business opportunities, and to help them to stop making the kinds of decisions that previously resulted in loss, suffering and shame. Jeff is the Co-Founder of Progressive Prison Ministries, the world’s first ministry serving the white collar justice community. It hosts a White Collar Support Group online on Zoom on Monday evenings, 7 pm ET, 6 pm CT, 5 pm MT, 4 pm PT. The group will mark its milestone 200th online meeting on Mon., April 13th. Jeff can be reached at email@example.com.