Direct Fraud

One of the worst cases that we have represented for loan fraud was for a business loan with a small enterprise. The company was small when it applied and was accepted for the loan, with the repayments being a reasonable rate to begin with. The issue was many of the illegal clauses in the contract about asset and inventory seizure.

Like the previous business owner from a few posts ago, this business owner had already established their business somewhat. While it was not a massive business, it had proof of affordability for the loan itself, and the application process had gone through a rigorous check. So, the business was always going to be affordable for the lender, with repayment expected.

Unfortunately, one of the terms within the contract was that if a repayment had come late, or the business owner asks for the possibility to push a repayment date back by a month or two, then the loan company had the right to seize the inventory of the business up to the value of the repayment for that month.

Therefore, the loan repayment clause was very unprofessional. If a business owner requests an extra month or two for a repayment due to financial difficulties or stock not selling fast enough, to punish them by taking the inventory that they would have used to make the repayment profit at cost is so detrimental it takes months of repayment profits away from that company.

Unfortunately, there is a second reason they had done this. Knowing that the company would then struggle to make a profit the next month, they continued this cycle of talking inventory at cost until the business was no longer viable. Eventually, it fell into bankruptcy and the lender was able to take the assets the company had owned. While we sued for the monetary value, we could not do anything about the business owners’ reputation.