“Minority Woman-Owned Business” is a very specific title that fits a public policy purpose by a Congressionally-mandated program to support economic growth in our country. The United States Small Business Administration (SBA) is the catalyst known for being highly regulated with the intention of making credit accessible. For entrepreneurs and those who dream of owning a small business, the SBA provides hope of achieving the American dream.
Inspirador was a small business idea, a dream and the passion of a “Minority Woman-Owned Business.” The owner and creator, Dilia Wood had a vision of building a venue to inspire one-of-a-kind weddings and to provide a unique service model concept to manage all the details of each couples dream day.
It was a start-up concept, which is known for being extremely difficult to find funding for.
After extensive research and planning for nearly two years before seeking funding, Dilia, along with her family’s life savings, embarked on a life-changing experience of her entrepreneurial dreams.
Her American dream.
Through the SBA 504 loan program, her American dream became a reality allowing her to build the location and service model she had envisioned. During her research, The SBA 504 Loan program was touted as a loan assistance program that was heavily regulated, leaving no room for shenanigans or tricks. It seemed like a safe and sound program to leverage as a novice borrower, or so she thought.
As a “minority woman-owned business” of African-American and Hispanic descent, to the banks she was the poster child for an SBA loan. The reality was, without the SBA her chance of starting her dream business would have been restricted.
However, the truth is because of the SBA, her dream was callously stolen by the very individuals trusted to administer the program!
How? Well, Inspirador (Spanish for inspiration) was growing year after year and creating jobs in the community. Her concept was in practice. Her theory of a business idea had proven to work. Despite one of the worse economies in history; Inspirador was an SBA success story!
It was ready to grow and expand, but at its peak Inspirador was swiped out from underneath her by the very individuals she thought wanted her to succeed. She was wrong.
Unfortunately, other small business owners across the country have been wrong too. The difference is that those small businesses ended up in bankruptcy and failure as a result and had no idea what hit them.
In the case of Inspirador there is real evidence backing up the allegations. Marie McDonnell, a credentialed Certified Fraud Examiner recognized for her findings in the infamous robo-signing scandal featured on 60 minutes; reviewed the documents in the Inspirador case. From the 96 page report (excerpt below) the preliminary findings concluded that:
“Compass Bank has no right to foreclose the Property because it has dirty hands and should not be allowed to profit from its bad faith and fraudulent activities”
Many of the documents, emails, letters and government certifications made available by a court ordered subpoena are shared on this blog which,
BBVA Compass Bank and Southwestern Business Financing Corporation (SBFC) colluded to manipulate the SBA 504 Loan program for their own nefarious motives.
To fully understand all of the intricacies of this harrowing story, let’s go back to
To create Inspirador, it was necessary for Dilia to own the real estate and not just lease it. With this in mind, the SBA 504 Loan was presented to her as the ideal solution.
It would be an old 12,000 square foot junk shop in a distressed downtown district that she dreamed of rehabbing for the Inspirador project. It was not for sale at the time. The owner made it clear to her that he had no intentions of selling his property to anyone in the local community. It could have been because she was an outsider and new to town, or maybe because of her dream, but he eventually agreed to sell it to her for $1,350,000.
It was an intriguing property because it –
- Was located in the heart of downtown
- Was listed on the historic registry (originally the O.S. Stapley Hardware Co.)
- Included four lots and air rights
- Had potential to continue to grow with the business.
But since it was originally built in 1916, the property needed a great deal of work.
Dilia hired a structural engineer to determine if the location could be salvaged for the Inspirador project. Everything came back in good condition except the report noted:
“Engineers highly recommends another inspection of the roof structure”
The property qualified for a city grant to renovate the exterior to its historic characteristics. It was estimated that the grant could be at least $250,000 and as much as $400,000. The city was excited to see revitalization taking place and supported her project fully. Dilia was excited to be a part of the downtown revitalization.
The Funding Began:
BBVA Compass Bank stepped in to fund the project through an SBA 504 loan, partnered with a non-profit lender known as a Certified Development Corporation (CDC) who is licensed by the SBA to administer these loans.
BBVA Compass would not provide funding without the SBA guarantee.
There were only two CDCs in town and Southwestern Business Financing Corporation (SBFC) was the CDC of choice. A bank and a CDC are both required.
Dilia went through the laborious and daunting task of applying for the SBA 504 Loan and was approved based on the condition that she contribute 20% of the total project costs in the amount of $460,000. She had what a banker calls “skin in the game” and a lot of it.
The financing would be based on “total project costs” divided between the three parties (50% + 30% + 20%):
- BBVA Compass would provide 50% secured by a first lien
- SBFC who represents the SBA would provide 30% secured by a second lien that would be 100% guaranteed by the SBA
- Dilia would contribute 20% as “borrower’s equity” in the amount of $460,000
The original Total Project Costs were $2,079,900.00 –and may have been the largest start-up SBA 504 in Arizona history.
The value of an SBA loan to a borrower is that you receive better than market interest rates with longer terms, no balloons, no early calls, etc. In Dilia’s case she would receive a 20-year note on both loans.
Robert D. McGee, President of SBFC imposed an additional and unique condition on Dilia’s SBA 504 loan application. He required that “Prior to funding, establishment of a restricted working capital account, with minimum proceeds of $250,000. Half of the required proceeds will be used as a payment reserve and half will be used for project related working capital needs.” The city grant of $250,000 was the only verified source to satisfy this condition and the SBFC Loan Committee approved the condition. Dilia agreed.
When you are approved for an SBA 504 Loan you are issued an “SBA Authorization for Debenture Guarantee,“ establishing the terms and conditions of the loan agreement. Dilia received her Authorization and her official SBA Loan #24404960-08 in September 2006.
Following that, BBVA Compass began its due diligence of the project and secured a $5,000 fee from Dilia to conduct their version of an appraisal and an additional structural engineer report due to the age of the property. This additional review of the structure would address the concerns that her engineer had regarding the roof trusses.
Based on the purchase price of the property of $1,350,000 plus estimated construction costs of $547,000, the appraisal came back with an “as-if completed” value of $2,300,000. Loan closing was scheduled.
SBA 504 financing is unique in that it requires the first lien lender, BBVA Compass, to advance 80% of the project up front at closing. 30% of their advance would be reimbursed by SBFC if the project was completed as approved by the SBA.
BBVA Compass was bound to the rules, regulations and the Authorization of the SBA.
SBA 504 Loan Approved:
The property was purchased November 14, 2006 -Both loans closed and everything seemed to be going normally and smoothly until…
- Early 2007 when 6,000 square feet of roof trusses were found broken and splintered beyond repair.
- The necessary repairs increased the construction costs by an additional $471,000
- April 24, 2007 BBVA Compass approved the full increase when they submitted their Modification to the Promissory Note increasing both loans.
- BBVA Compass increased their first lien from $1,039,900 to $1,400,000
and BBVA Compass CONCEALED
these “material changes“
from the SBA
Construction proceeded and an extortion method to seize the $250,000 grant from the woman owned business was then put into play by both lenders. See Part 2: The Extortion Method and later The Concealment Method
*If you or someone you know has had an unfair experience or inexplicable experience with an SBA 504 Loan please contact us at: firstname.lastname@example.org