SBA Loans: What to Do If the Bank Freezes Your Account
- Many businesses that were eligible for SBA loans have faced subsequent difficulties in proceedings with the SBA, their banks, and federal authorities.
- Already, several businesses and individuals have been charged for bank fraud, wire fraud, conspiracy, other federal charges and have also had their bank accounts frozen.
- Banks have reacted to this environment of legal and financial uncertainty created by the coronavirus by scrutinizing transactions that are regarded as suspicious.
- Possible responses to such transactions include freezing accounts or issuing fraud alerts.
- An account freeze prevents the holder of the account from conducting transactions and will usually not disappear until the case is resolved. This may involve an internal investigation by the bank or an external investigation by federal authorities in the case of suspected SBA-related loan fraud.
- Consider hiring a team of consultants to resolve these uncertainties immediately before further federal escalation.
SBA Loan Fraud Defense Team
Has your bank account been erroneously frozen or flagged for fraud? If your account has been frozen in connection with your SBA loan or has been locked for possible fraud, it is time to take prompt action in your defense.
The increase in investigative efforts by the DOJ, SBA Office of the Inspector General, SEC, and FBI have made companies increasingly worried about impending SBA audits and even federal prosecutions.
The PPP loan process was meant to put U.S. businesses at ease and give them a peace of mind regarding their expenses during the economic downturn. And now as the economy slowly begins to reopen, businesses need stability, certainty, and a guarantee that they can continue operating without unnecessary impediments—such as bank freezes.
At Corporate Investigation Consulting we understand that it can be very frustrating to receive a notification that your account has been frozen by your bank, especially now during times when you need the extra assistance and relief more than ever.
Our team includes former FBI agents who are intricately familiar with federal investigative procedures and prosecutions. This inside perspective enables us to give you the best chance of success with a hand-tailored approach.
Our team of consultants is poised to defend your business against unwarranted charges of loan fraud, navigate through the loan process, advise you on preparing for an audit by the SBA, and also respond to situations where the bank has frozen your account.
It is time to take action to protect your business and its future. Call Corporate Investigation Consulting today to fight for your liberty and reputation.
Introduction to the SBA and PPP Loans
The CARES Act
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act was designed to introduce massive stimulus into the U.S. economy in response to the novel coronavirus. One of the most important programs within the CARES Act is the Paycheck Protection Program (“PPP”) (15 U.S.C. §§ 632, 636).
The purpose of the PPP is to deliver immediate economic relief to individuals and businesses that have been negatively affected by coronavirus.
Specifically, the PPP provides loans guaranteed by the Small Business Administration (“SBA”) to eligible businesses to keep their business operating and their employees on payroll.
These loans are forgivable if the business keeps all employees on the payroll for eight weeks and the loan funds are used for payroll, rent, mortgage interest, or utilities. If the loan proceeds are not used for these purposes during the covered period, the loan is not forgivable.
PPP Loan Fraud
Over the past few months, loan fraud in connection with PPP loan applications has become widespread. PPP loan fraud is the defined as the process of obtaining federal loan proceeds through the CARES Act by utilizing misrepresentations, false pretenses, or deceit.
PPP loan fraud can manifest in several ways such as regarding the applicant’s eligibility for the loan, the amount of loan desired for the business, or whether the business has the necessity for obtaining the loan in the first place.
In addition, loan fraud can also be perpetrated by misuse of the loan proceeds, fraud in the loan forgiveness application, and the illegal transfer of the loan proceeds to a foreign jurisdiction or other offshore account that is shielded from the reach of U.S. tax law.
Response from Banks
Sometimes, individuals find it preferable to transfer their PPP loan or other SBA loan proceeds to an alternative account.
The reasons for this vary. On the one hand, the individual may deem it beneficial to have a separate account for PPP loan proceeds to make accounting and payroll more manageable. On the other hand, the individual may be designing an elaborate scheme to transfer the funds to their personal account or an offshore account to avoid U.S. detection and enforcement.
Despite the underlying reason, these transfers have already placed banks on high alert. Banks are most likely to regard these transfers as indicative of fraud.
As a response, banks have begun to freeze accounts due to possible illegal activity in connection with that account and its proceeds.
The individual is then typically informed that their account is frozen or that a fraud notice has been placed on their account.
What Does A Frozen Account Mean?
In simple terms, a frozen bank account means that your bank has concluded that there is something wrong with your account and that the funds within it need to be immediately protected from all sources.
A bank freeze will usually not disappear until the case is resolved in its entirety. This could entail an internal investigation by your bank in the best-case scenario or an external, public investigation by federal law enforcement agencies—such as the SBA or DOJ—in the worst-case scenario.
If your bank account has been frozen, you are well aware of the resulting implications:
- inability to use the loan proceeds for payroll and other eligible expenses,
- halted business operations,
- inability to carry our normal transactions unrelated to your SBA loan proceeds,
- delayed scheduled payments,
- reputational harm, and
- the frustration, anxiety, embarrassment that are accompanied with the prior implications.
Do not wait a second longer to get in touch with an experienced consultant to resolve this problem immediately so that you may have access to your account and funds as soon as possible.
Why Do Banks Freeze Accounts?
Below we summarize the most common reasons why a bank would freeze your bank account:
- Suspected illegal activity or fraud: This is the most common reason for a bank account freeze. If the bank observes instances of suspicious activity indicative of loan fraud, money laundering, funding illicit operations, etc., it may conclude that the account has been compromised and therefore freeze it and issue a fraud alert. Fraud alerts can be complicated because they take time to resolve. In today’s uncertain legal and economic environment riddled with PPP loan fraud, this risk is exacerbated.
- Not paying your debts or defaulting on your loan: While court order is sometimes necessary for this reason, the bank may freeze your bank account if you have unpaid debts or defaulted on a loan. This includes SBA-guaranteed loans such as PPP loans.
- Account activity not initiated by account holder: If the bank believes that a certain transaction or series of transactions were not initiated by the account holder, it may freeze the account until the account holder is contacted and asked to verify the transaction’s details. Large transfers, deposits and withdrawals, and foreign transactions are common examples of red flags.
The above categories could all encompass situations that pertain to your recent SBA loan. However, it is important to remember that the SBA is not the lender; the lender is your financial institution—your bank.
If you default on your SBA loan, your bank will first attempt to collect from you before turning to the SBA’s guarantee. Initial responses include late payments or restructuring the loan and the later consequences may entail garnishment and bank account freezes.
Recent Trends in the SBA Loan Process
Forbes recently reported in April 2020 that the SBA had notified about 8,000 small business owners that sought SBA Economic Injury Disaster Loans and had told them that their personal information was exposed online due to a “glitch” in the online application system.
This raises privacy concerns and increases the likelihood of theft of the applicant’s sensitive business information, address, owners’ social security numbers, phone numbers, email addresses, etc.
These issues are especially troublesome in the midst of the coronavirus and resulting implications on local economies and small businesses.
As a precautionary measure, banks have become acutely wary of any and all instances that may indicate fraud.
If there is something slightly suspicious or suggestive of fraud, banks have acted promptly to lock individuals’ accounts containing federal loan proceeds, issue fraud alerts on those accounts, and freeze those accounts from future use.
What to Do After Your Account Is Frozen
The first thing to remember is not to overwhelmed by fear and uncertainty. It is most likely the case that your bank froze your account in response to a transaction that was out of the ordinary and that may have been initiated by you.
We are here to help ensure that your bank freeze or fraud alert does not transform into an SBA full-length audit or a protracted federal investigation. This would wreak havoc on your business.
Our consultants can work with your bank — and federal authorities if necessary — to lift the bank freeze, address any concerns, and resolve the uncertainty around the allegedly suspicious activity.
You deserve your SBA loan proceeds, and we will fight to make sure that you have full access to everything you need to keep your business operating and keep your employees on your payroll.
The prevalence of scammers seeking to take advantage of times of financial uncertainty is expected. But you should not be made the victim. If these circumstances fit your situation, give us a call today.
Need Advice Regarding A Frozen Account in Connection with an SBA Loan?
The SBA loan process—including the PPP—has resulted in many challenges for loan recipients, banks, and the SBA.
In addition, federal authorities have increased their investigate efforts to prosecute individuals suspected of engaging in fraud in connection with their SBA loan.
The increased instances of fraud have put all players on edge, including the banks, who have recently tended to freeze accounts and put fraud alerts on individuals’ bank accounts.
Getting your account frozen can be devastating for your business’ operations, especially if you are deeply dependent upon the loan funds for re-opening. Further, SBA loan fraud charges can result in federal civil and criminal penalties, imprisonment, and reputational harm.
In addition to inquiring with your bank, it is critical that you retain a consultant to advise you on potential loan fraud issues including frozen accounts.
At Corporate Investigation Consulting we understand that some of these charges and responses by banks — such as accounts freezes — are misplaced. Our team is well equipped to defend you against federal charges and get to the bottom of any legal uncertainty.
We can help you understand your legal options, clarify your rights, and get your bank account unlocked.
Get an experienced consultant on your side to advise you on how to proceed regarding complications in the SBA loan process.
Call us at 888-680-1745 or contact our office for a free consultation.