BLX and Other Risky Lenders To Be Investigated by Government
Blue MauMau has covered the Business Loans Express debacle, which has a franchise connection, over the past year and a half. In late 2006, prior to the U.S. Attorney's announcement of the investigation and charges, the International Franchise Association partnered with the BLX lender in announcing its newly formed Franchise Diversity and Development Initiative at an Atlanta-based conference. David Nayor, vice president of BLX, told the audience that their goal was to assist franchisors in taking advantage of growth opportunities in urban locations to provide a one-stop shop for financing, location, tax credits and operational support. BLX was accused of fraudulently qualifying loan applicants for SBA-guaranteed loans, primarily for the purchase of gasoline dealerships, a type of franchise. IFA Foundation President John Reynolds had described the program as one that would offer financing and technical assistance to women and minority franchisees.
This week Senators Kerry and Snowe requested an investigation into the SBA's lender oversight system after the Inspector General's office uncovered "major weaknesses." The report detailed how the SBA's poor oversight of four top lenders failed, creating a loss of $329 million in its largest loan program. The Senators requested that the GAO examine the SBA’s system for monitoring SBA lenders’ portfolios and identifying risky lenders.
Senator Kerry was very critical of the Bush Administration, stating that despite warning signs they still don’t have the correct oversight mechanisms in place to improve their system. He said, “Since the string of reports by their own Inspector General hasn’t been enough to spur them into action, this investigation is a wake up call to the Bush Administration to get safeguards in place to keep these important programs strong." Senator Kerry is the chairman of the Committee on Small Business and Entrepreneurship.
Senator Snowe, ranking member of the Committee on Small Business and Entrepreneurship agreed, stating it was clear that rapid change was needed. They have actively pressed the SBA to improve their lender oversight system. Last month in a letter to the SBA, Senators Kerry and Snowe questioned the wisdom of placing the lender oversight office within the SBA’s Office of Capital Access, the office which promotes the agency’s lending programs. They also criticized the SBA for moving forward with a proposed rule that the Senators believe is insufficient to improve lender oversight.
According to Robert Coleman, publisher of the Coleman Report, who reports on the SBA performance of franchisors, the Senate has long been an avid supporter of SBA lending programs. He said, "Notably, the Committee has acted in a bipartisan manner for many years supporting SBA in the small business community. However, Senators Kerry and Snowe are very concerned about the inability of SBA to adequately oversee certain lenders in its SBA lending programs." But he adds, "The small business community of lenders who use the program in the appropriate manner should not be concerned by this hearing. If anything, it will make the program stronger."
Related reading:
- Kerry, Snowe Request Investigation of SBA Lender Oversight
- Allied Capital 3rd Quarter Shifts Away from BLX
- Former BLX Executive Pleads Guilty
- New BLX Indictment, Sentencing in SBA Loan Fraud Scheme
- Franchise topic:
