I first met Dilia Wood through a referral source in the spring of 2006. My name is Kevin Howard, I was the original Loan and Business Development Officer on her loan. I was working for Southwestern Business Financing Corporation (“SBFC”). We were a non-profit Community Development Corporation (“CDC”) that provided SBA government guaranteed loans for local small businesses.
Wood had dreams of starting an event planning business. Her project fascinated me because it would be the largest start-up financing in my career, and despite the obvious risks, Wood had really done her homework preparing a high-quality business plan. After a few meetings with her, I knew that her business would be a success and my company approved the financing for the project.
Inspirador was a “poster child” for the SBA 504 program
and she embodied the American dream.
I also knew that no one would provide $2 million in financing for a start-up business without the support of government-guaranteed financing. If Inspirador was successful, the new business would employ seven to 10 permanent staff and keep about 250 temporary employees employed throughout the year. The City of Chandler was so excited about the project that they agreed to reimburse Inspirador $250,000 from their Historic Facade Grant Program at the end of the project.
I knew getting the loan approved would be difficult because we would have to base our loan repayment on the strength of Inspirador’s financial projections. A key strength was her willingness to invest $460,000 of her families life’s savings into the project. When assessing loan risk, bankers need to know the borrowers have significant cash invested in the deal.
Let me take a moment to mention how impressed I was to know that two young professionals in their mid-30s had been able to save more than $500,000, and were willing to invest it all to make their dream of owning a small business come true.
It was deals like this that inspired me to be a banker in the first place.
In June 2006, I wrote my presentation credit memo for distribution to the SBFC Loan Committee. Under our credit policy, all loans for start-up businesses required approval by the all members of the SBFC Loan Committee.
Our loan committee was comprised of experienced credit officers from Wells Fargo, Bank of America, Western National Bank, and other financial institutions in the greater Phoenix metropolitan area.
“The entire loan committee unanimously approved the financing for Inspirador.”
There was a special condition to the approval: Prior to our loan funding (which occurred after the project’s completion), Inspirador needed to receive a minimum of $250,000 from the city of Chandler grant. These funds had to be deposited into a restricted account, half to be used for loan payments and half to be used for operational working capital. This was a non-negotiable condition.
The SBA approved an initial loan structure in September 2006 based on the
“Total Project Costs” of $2,079,900.00.
This was the only structure I knew about and the only structure to my knowledge that the loan committee knew about. In early 2007 there was a change to the project costs due to a serious change in the cost of construction. My boss Bob McGee, President of Southwestern Business Financing Corporation handled the modification to the change.
It was how Bob McGee handled the modification
that turned an ideal SBA 504 loan into
a banker’s worse nightmare
This SBA government guaranteed loan was tragically manipulated and destroyed by my boss, Bob McGee and BBVA Compass Bank. To fully appreciate the nuances I will walk you through an insider’s view – the banker’s view of the transaction.
In a three part blog series I will walk you through:
- how the loan was approved
- how it was modified
- how it was tragically destroyed
Bankers aren’t known for divulging insider details of loan transactions like this one here.
It’s a career killer!
I have risked my banking career by giving full fact based disclosure here because I believe in the value of the SBA loan programs. I was shocked to learn how my boss, Bob McGee mislead the SBA and the public policy purpose to offer loan assistance to a Minority Woman Owned business.
See my next blog (coming soon): Insider View: How the Loan Was Approved