SBA Liar Loans

Have you had an experience:

  1. In which bogus financial projections were prepared by your lender that you suspect were thrown in only to meet minimum hurdles to qualify you for an SBA-backed loan?
  2. Where you banned from seeing your franchise's financial projections that are used in applying for SBA-backed loans?

Blue MauMau is looking for specific examples, e.g. copies of pro-forma statements, in which it is obvious that the lender ignored reality in order to get you qualified for an SBA-backed loan.


This is an open, unmoderated public forum discussion on specific topics that follow an editorial schedule. Your story and post in this forum may be used for a news article.

Please try to speak about YOUR experience. Be specific. Describe what happened. Who did what? And please put on your management hat and suggest a way in which it could be done better. If you don't want to speak specifically about your own experiences, then post or link to charts, studies and graphics that support your point of view.

If you don't mind corresponding with the editor, Mr. Blue MauMau, via our internal and private Blue MauMau email system to explore your experiences more, please make sure you register and login before you post.

Publishing date for the news article: Late October

"Zee's" or "ZZZZ's"? BMM needs your help!!

Do I refer to you franchisees as "zees" or "zzzz's"?  Wake up.  Your SBA loan is just like your mortgage:  The amount of loan you qualify for is based on your income.  If you need a mortgage for $300,000, you must have an income great enough to qualify for the loan. 

Very similar with a SBA loan.  You need to borrow "x" amount.  The SBA requires you show a net profit of "y" on your business plan projections to qualify for the loan.  If the profit on your projections (much like your income) isn't enough to get the money you are asking for, you will not get the loan amount you need.

One problem, if you did not finance the whole purchase (assuming you paid cash for half the total start up expenses) it may make it difficult to see the problem.  If you financed the whole costs (i.e. Quiznos start up costs of, say, $300,000) then look closely at your projections on your business plan and see what your first and second year gross revenue projection was.  Then ask yourself if you hit that projection in the first year - and if you think others in your system met the projections.

Q Zees.  Forget about overpaying for product.  Forget the mice marketing campaign.  LOOK AT YOUR PROJECTIONS ON YOUR SBA LOAN APPLICATION.  One fellow Q zee stated here that $6100 is the avg wkly gross revenue (or about $320,000 per year).  What do your projections state for year one and two?  For the full loan amount (about $300,000 for a brand new Q) I would bet your projections are well above the $320,000 level.

on August 14th, 2010

Oldsaw needs your help with his delusions

If you submitted false projections to get your SBA guaranteed loan you may have committed fraud.

Posted by Guest on August 14th, 2010

Zees, the Projections Provided to You were Fraudulent

Guest, both Solomon and Webster came out affirming my comments and shutting you down.  ( I can paste them here to remind you, and show everyone else, if you like.)

Zee's, you did not commit fraud

1.  This is an industry wide method used to get financing for franchisees - financing that you would not have qualified for if the real numbers were used. 

2. The SBA realizes that when performing "due diligence", the franchisees you called are uncooperative and unwilling to divulge their numbers. 

3.  They also realize you cannot come up with real numbers using the FDD/UFOC.  

4.   Most important, the SBA is now seeing the CONSISTENT projections for various franchise systems - projections that zees are not even coming close to reaching after they open. 

While guest wants to shut you up so he can continue selling franchises based on fraudulent numbers, YOU now have the opportunity to speak out.  DON'T BE SCARED INTO SUBMISSION -  which is exactly what franchisors do when you begin noticing problems and try to become vocal. 

Simple math:  How are Quiznos franchisees, Blimpies zees, Cold Stone Creamery zees, Cuppy's zees, Hollywood Tans zees, (and many, many more) getting approved for SBA loans?  Answer: a coordinated effort by the franchisor (and in many cases, loan consultants and franchise consultants) to have the franchisee use gross and net revenue numbers on the loan application that are no where near reality. 

on August 15th, 2010

Oldsaw Hyperbole and Histrionics

Oldsaw fact is that while you can claim that someone forced you submit a false business plan to your lender to get an SBA guaranteed loan you did it and claiming ignorance is no excuse. You may have worked with an unscrupulous loan packager but you are still culpable.

Posted by Guest on August 15th, 2010

Time to Speak Out (and ignore franchisor intimidation tactics)

Zee's, time to get a back bone and start analyzing your business plan projections that you submitted to the SBA - AND talk to fellow zees who also financed thru the SBA.  SBA is seeing their huge default rates and recognize it is impossible that within a given system (i.e. Quiznos) SBA zee borrowers all had very consistent projections (given a similar borrowed amount) - all meeting SBA loan ratios. YET, seeing few zees actually reaching those projections.

Those speaking out against this want (actually - need) this manipulation to continue in order to sell franchises. 

The SBA does not consider zees "culpable" - they realize none of you know what their required ratios are AND none of you would falsify numbers to get a loan that you knew would guarantee you losing tens, and in many cases, hundreds of thousands of dollars - and placing your assets including your home as collateral.  Even the government isn't that stupid (although can't say the same for Guest).

on August 15th, 2010

Re:Time to Speak Out (and ignore franchisor intimidation tactics

While Oldsaw may be right that the SBA is forgiving of franchisees that submitted false projections (I doubt it) and franchisees don't really need to worry about the SBA since they will punish the lender by not making them whole on the guarantee. Franchisees need to worry about their bank going after them for fraud especially in the event the SBA nullifies the guarantee and the bank wants their money back from the borrower.

I'm curious Oldsaw how is it that this purported widespread fraudulent activity has little attention and almost no current and former franchisee outrage other than you?

Posted by Guest on August 15th, 2010

Re: Re: Z's Speak Out (and ignore Zor intimidation tactics)

Simple answer Guest:  the same reason why people like you are able to get these numbers past so many franchisees -

1.  They don't understand numbers.  Even after walking zees thru multiple business plans of fellow franchisees, they couldn't get their heads around the concept.  The great majority of people are not numbers oriented which makes them prime targets.

2.  They don't want to take the time to review their SBA loan documents (if they even still have them) and then call around to other franchisees to discuss it.  Going back to number 1, they don't get it and are unable to explain it.  (BTW, just got off the phone with a zee from another system - they didn't remember their projections from their plan and never even thought of going back to look at them - and they are barely breaking even.  They are now curious as to what their numbers were and are now looking them up.)

3.  Acknowledging it means to accept that they were duped from day 1 (which they were).  Unlike being able to tell a spouse or family member that the franchisor is not helping with marketing or that the people in the area are just not buying, it is harder to say "hey, I was scr-wed from day one and the zor knew I was going to lose alot of money in the first year, if not two."

on August 15th, 2010

Re: Re: Re: Z's Speak Out - Oldsaw Foolishness

1. Ignorance is no excuse when making any business investment it is up to the investor to know their own projections and business plan.

2. Again the duty and obligation is upon the borrower to know and access the risks and they must carefully review their loan documents.

3. Your point is just plain foolish - your business plan needs to make financial sense to you, if it doesn't you should abandon the investment.

Oldsaw you are an articulate incompetent and it is easy to see why you failed. You once again have been unable to achieve redemption and absolution from you sins. Blaming others will never assuage your guilt.

Posted by Guest on August 15th, 2010

To All Q's

To All:

 I'm sure you have seen me post on other blogs.  I have a couple of quick questions.  Please take the time to look back into your files for this.  If, in fact, many of you are failing would you please answer me this:

1. Did many of you take out a SBA loan?

2.  What were your revenue projections for years 1, 2 and 3?

3.  Where (or from whom) did you get the projections?

4.  What were your actual first, second and third year gross revenues?

At $250,000-$300,000, its quite possible many of you did use the SBA for financing.  (And I expect to be bombarded by zor apologists here because this is one thing they definitely don't want public.)  If real revenues do not come close to your projections it will possibly show that there was a coordinated effort by Q to fudge these numbers in order for you to get the loan - a loan you would never have qualified for without the inflated numbers.

 Take the time to look.  As a well known attorney here on BMM said in another blog (paraphrasing) - it could show an attempt at an earnings claim thru the back door.

on August 17th, 2010

Study Credibility

I know this isn't related to the lawsuit settlement, but since this is where Oldsword posted it, I'm going to reply to it here.

The first time i saw the 'Reader's Assignment' on the right hand side, I had a pretty good idea in theory this would be an interesting topic.  As I was thinking about it though, I realized that this report will most likely be heavily biased towards stores that failed, because that seems to be the reader of this website.  

Here you have Oldsword calling on the 'failed/failing' franchisees to go back and look at the SBA projections to try and get them to tell their story.  If you want a good report, leave out that sentence and ask everyone to do it.  No need to call out failing franchisees.  

Second, you talk about getting bombarded by zor apologists, which to me signals that this report is going to have it's weaknesses.  If the report can stand on it's own then the author shouldn't have to worry about people criticizing it, and they will be able to answer all of the criticism with supported facts.

In my opinion, the report will be an interesting first step, but I'm already guessing that the predominant number of responses will come from franchisees that failed.  I think the key number (that I don't know if you will get) is what percentage of stores did meet the SBA loan documentation, what % of stores not going through the SBA process met those numbers.  For example if you have 100 stores total and 50 went with SBA loans and 50 went another way (self-financing or non-SBA loan), and of those 80% of SBA loans didn't meet the projections, but 80% of the non-SBA loans met the projections, would it be fair to say that the projections were 'doable'?  (btw, I'm not saying this is the case with quizno's, just saying that could easily be a question asked).

on August 17th, 2010

Oldsaw Incredible and Statistically Invalid

Oldsaw you don't ask who prepared the projections in franchisee business plans and if the plans were reviewed by the franchisor before or after the franchisees signed their franchise agreement, if at all. You also don't mention resales vs new development.

P.S. Oldsaw the vindication you seek and ultimate absolution you so desperately need will never be realized.

Posted by Guest on August 17th, 2010

Re: Study Credibility

Jd, excellent comment.  I did not mean to preclude profitable zees.  Also, this isn't meant as a "study".  Rather, it is meant to see what numbers are being used to gain approval for SBA loans for specific systems.

Someone posted on BMM that the average wkly gross for a Q is $6100.  That works out to approx. $320,000 per year.  Understand that the SBA requires the projections on the application to show a NET profit of "x" amount (debt coverage ratio of about 1.2x-1.5x). 

If you read these Quiznos posts regarding the number of failures, and if the $6100 per wk is correct, there is no way the Q SBA borrower IN REALITY met the minimum standards (mind you, the $6100 avg is across the board - SBA and non SBA Q owners).  Meaning: the chances are excellent that projections significantly higher than the average is being used to gain SBA loan approval.  Are they "unattainable"?  Maybe not.  But do we take every rookie ball player and automatically place them in the Hall of Fame?  No.  Why?  Because only the very few elite ever attain the numbers needed for admission.  Yet, SBA loans appear to have "Hall of Fame" projections placed on each and every one.

Remember, without significant profitability the loan would never be approved. (in my case, I was given a $78,000 net profit - it varies depending on the amount of the loan - and in actuality, the avg revenues in my system in the first year is a net LOSS of 6 figures)  If inflated projections are needed for the Q's as well, then every loan may be bogus, just like every one for my system (information provided to me by SBA).

There is however, one caveat.  If the zee invested a large sum and took a smaller SBA loan (i.e. loan of $100,000) and showed projections of $320,000 there is a chance his numbers will work because the business plan doesn't take into account paying yourself back the invested amount - it all depends on total monthly expenses.

on August 17th, 2010

Here is your problem

the study is called 'liar loans', and you have to prove that the number is unattainable.  There are other factors to consider and that is looking at the expense side and comparing actual percentages to what was in the business plan.  

In addition, you are looking at your actuals compared to the SBA projection.  In reality you should be looking at the 1 or 2 years prior to you opening up shop, because that should be the numbers that were used in the projection.  In the system I was at, we had two years where it was about the same number of store openings.  The first group did about 15-20% better in sales than the second group.  If we were putting together an SBA projection using the first groups sales for the second group, that would be fair, right?  The second group could think that the number is unattainable, but in reality the group a year earlier got there.  

If you want this to have any meaning, you've got a lot of points and issues to make sure you cover.  

on August 17th, 2010

Re: The Problem (Li-r Loans)

Jd, first, thanks for your interest in this.  I want to say this is not a "study" but an attempt to get zees to use their d-mn brains and look at what was sent to the SBA.  No one I have ever spoken to (and I have spoken to many) even thought of their application after it was completed.  We first need zees to wake up - especially Q's since there are so many of them -but we will speak to any zee.  We just need them to open their eyes. 

Second, we don't need to prove they are unattainable, just wildly off the norm.  Did we have some sites meet the $500,000 gross level in their first year?  Yes, but no more than a dozen in the twenty+ year history (and I am being very generous about the dozen - I have heard of less than 6).  Of those that hit the number, less than half hit the net revenue debt coverage ratio (they pay so much for marketing to get things going that they don't generate a net profit).

Jd, not only is there a problem with these projections, but the lenders on these SBA loans are required to perform a reasonability analysis on the assumptions of the projections and they are required to collect, annually, the P&L's of each borrower.  Think about it.  There are major SBA lenders who make many multiple loans to individual franchise systems.  They have the P&Ls/tax returns of prior borrowers to determine whether the projections are real.  Even mine - and they continued until an avalanche of defaults occurred.  We were set up.  The franchisor knew we were going to lose money in our first two years (the operations mgrs two days prior to my opening said it straight to my face - a little late, don't you think?)

These inflated projections (to reach SBA requirements) is being done by (at a minimum) hundreds of different systems.

on August 18th, 2010

Oldsaw a great story

Widespread loan fraud, three party collusion and conspiracy by franchisor, SBA lender and loan packager. It's a great story full of intrigue, good guys, bad guys and a hero who goes by Oldsaw. Oldsaw is the defender of the disenfranchised, the weak and the afflicted. Believe in him and you will find salvation.

Oldsaw it's a fantastic tale, but how did the conspirators keep it secret all these years?

Posted by Guest on August 18th, 2010

Re: the story is much better than can even be explained below

1.  NO ONE looks at their applications after the fact so zees could never put it all together.

2   The SBA is the most scandal ridden agency in the U.S. gov't.  Little to no oversight.  Why?  They are involved in every Congressional district in the U.S. so Congress supports them no matter what. (stated to me by a very high level U.S. Senate staffer)

3.  Banks realize it is easy money (or was until the latest financial crisis) so they look the other way - its gtd profit.

4.  No one including WSJ writers (who have covered SBA extensively) and research think tanks have ever thought of looking at the very beginning of the loan.  I know, I've spoken to them and they were shocked when I should them my info. 

5.  SBA has no idea what is going on.  (and let's just say they need to study their laws better so a "non-staffer" doesn't have to point out certain regs in their own SOP's that they said didn't exist)

thats just for starters

on August 18th, 2010

Oldsaw the saga continues

You are the smoking gun. You are the hand of God!

Posted by Guest on August 18th, 2010

Oldsaw, you're on the right

Oldsaw, you're on the right track. Look into those franchise systems with exclusive or near exclusive loan broker or franchise hawkers selling the deals. The broker often prepares the dubious projections and resells them to multiple zees. Then, mercenary SBA BDO's marshall the loans through their credit administrators and collect fat commissions. It's churn and burn for BDOs. They know that many of these franchises are dubious. The lender makes money, so there really isn't much scrutiny given to the SBA portfolio until a large fraud case shows up. The projection numbers are based upon faulty information provided by the zor and loan/franchise broker. Now, I do agree with Guest in the sense that you are fighting a losing battle. The SBA game is too lucrative for too many people for anyone to seriously clean it up. Moreover, there's too much political capital at stake for the agency to self police. During this downturn, the SBA lobby has convinced most of the public that the SBA lending is small business lending, and lending to small business is good for the U.S. economy. They conveniently leave out the fact that SBA lending accounts for less than 5% of all small business financing. Also note:

1. The banks won't go after the borrower for fraud b/c that might expose the bank to scrutiny and jepoardize the lender's reputation and PLP license.

2. If the SBA denies the guaranty, the bank won't seriously pursue the borrower because he may shine a light on the BDO and loan broker's actions. SBA lenders do not want increased scrutiny no their SBA loan packages.

Posted by Guest2 on August 22nd, 2010

Re: Guest2: "You are on the right track"

Could use your help.  If you set up an account here at BMM (set it up under a pseudonym so no one will know who you are) we can email using BMM's private email system. 

I've actually commented on your info in other blogs but it sounds like you may be privy to specific info that can help get this story moving forward.  Again, could use your help.

on August 22nd, 2010