An Unscrupulous SBA Side Deal for a Woman-Owned Business

YES inspirador front sign

The only deal known to the SBA and the woman-owned business was straight forward and simple.  The 504 Loan would be used to purchase commercial real estate and complete construction to launch her start-up business of a wedding and event facility.  A $2.3 million project.  She would need to contribute approximately 20% ($510,000) and the lenders would split the remaining 80% as 50%/30%.  Additionally, the woman-owned business would be required to complete all of the conditions of the loan as approved in the SBA Authorization including receipt of a $250,000 grant awarded for the completion of the construction on the historic property.  The grant would be required to be reserved for mortgage loan payments and working capital for the start-up.

The woman-owned business performed all of the conditions of the loan according to the lender’s certifications to the SBA.  She contributed more than $510,000 of her family’s life savings into the project.  She completed construction and was ready to launch her business.  Unfortunately, the lenders had a secret side deal that they needed to complete before she could begin.

It took four highly experienced bankers to foster the secret side deal. designed to induce the U.S. Small Business Administration to guarantee a loan on a multi-million dollar project; while simultaneously setting up the woman-owned business for certain and immediate failure.  The side deal between BBVA Compass Bank and Robert D. McGee (Bob McGee), President of Southwestern Business Financing Corporation (SBFC) appears to have been meticulously designed to do three things:

  1. mislead and induce the the SBA into guaranteeing a small business loan
  2. secretly seize an additional $250,000 grant plus $50,000 in borrower’s cash from a start-up business
  3. quietly take a highly desired piece of commercial real estate from a woman-owned business

Ultimately, what makes a side deal work is industry experience in a complex transaction that would be a challenge for any lay person to unravel.  The efforts in this side deal demonstrate an absolute disregard for the public policy purpose of the SBA 504 Loan by two premiere SBA lenders. 

The four highly experienced bankers who were also considered SBA 504 experts in their field included:

  1. Robert D. McGee, President
    Southwestern Business Financing Corporation (“CDC”)
  2. Teresa Mandelin, Senior Vice President
    Southwestern Business Financing Corporation (“CDC”)
  3. Burton L. Messick, Senior Vice President
    Compass Bank (“SBA Lending Division”)
  4. Michael Monterrubio, Senior Vice President
    Compass Bank (“SBA Lending Division”)

The irony here is that none of these players were the original loan officers on the transaction.  None of these players had ever met the woman-owned business prior to their efforts to form the side deal.  Instead, two other loan officers originated the transaction.  Both were circumvented  from the transaction and avoided in communications regarding the loan changes and the side deal.  In an effort to prevent internal scrutiny into the side deal both were eventually removed of their roles and in the long run blackballed from ever seeking employment in their field ever againThey were “out of the way”.

The new “foursome” agreed to write-up an internal memo about the structure of the dealThis time they would write it not on company letterhead, not using an SBA form and without a trace of approving signatures.  The internal memo would become their only paper trail.  Their “story”.  On the header of the memo it states:

“Policy exceptions requiring approval” = NONE 

The foursome had taken it upon themselves to circumvent their own credit approval policies and worked in tandem to push the side deal structure through their systems — QUIETLY.

The memo also stated that a “written agreement with the borrower will be a condition of the loan” and “the $250,000 city grant funds would be handed over by the borrower to (in theory) pay down the BBVA Compass Bank first lien from $1,400,000 to $1,150,000.”

Compass Credit Memo_Page_1Compass Credit Memo_Page_2

The memo was emailed from Monterubbio to Mandelin at the CDC for review and approval.  Mandelin and McGee responded that they had reviewed and were “okay with the changes” to the structure.  They agreed to proceed with a formal request to the SBA for final approval through a 327 Stamp Action.

teresa email

The problem with the CDC’s concurrence to the changes was that it would require disclosure of at least three substantial and  material changes to the original SBA Authorization among many others.

  1. Disclosure that the lenders intended to force the borrower to contribute an additional $300,000 cash into the project for a total borrower contribution of $760,000
  2. Disclosure that Compass Bank had increased their first lien note to $1,400,000 without SBA approval and without an amended appraisal to support the value on the common collateral. Combined liens were already at 90% LTV
  3. Disclosure that the bank wanted to take the only verified source of working capital for the start-up business in the amount of $250,0000 to pay down its own first lien note in front of the SBA

In more than 14 known certifications to the U.S Small Business Administration the lenders jointly mislead and concealed the material details of their side deal.  No written, verbal or agreement of any kind with the woman-owned business  was established.  In reality a written agreement with the borrower was required by the banks own Deed of Trust.  However, such an agreement would have left an unwanted paper trail and the foursome evaded their own loan condition and failed to secure such an agreement.

Without a written agreement the only mechanism to secure the $250,000 grant was coercion and a threat to foreclose the property in the event she didn’t cooperate.

Experienced bankers understood that seizure of the grant funds would have left the woman-owned business with no resources to make the first mortgage payment or start her business. Additionally, the seizure would have forced the woman-owned business to automatically and immediately default on her SBA guaranteed loan with no financial resources to fight a legal battle to prove otherwise.  The completed commercial real estate valued at $2.9 million with more than $1 million in equity sitting idle would have gone back to the lenders to be handled “accordingly”.

Staff at BBVA Compass questioned the lack of disclosure of the city grant to the SBA.  Bob McGee confessed in an email that “If I had included the city piece it would have materially changed the injection, etc.  Since it’ll be gone before we fund, the approved structure makes it work.”

itll be gone

With no written agreement for the borrower to agree to “hand over” the $250,000 grant it appears to have left the BBVA Compass staff in a quandary on how to “handle the borrower”.  A string of emails demonstrates their conundrum to regroup, strategize and “meet for a game plan”.

surprise emails_Page_1surprise emails_Page_2

The banker’s side deal works if the unwitting woman-owned business simply goes along with the direction of the “experts”.  In the event she didn’t cooperate the banker’s were prepared with a well thought out and  premeditated cover up plan.

*If you or someone you know has had an unfair experience or inexplicable experience with an SBA 504 Loan please contact us at: 

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