Criminal Prosecutions of EIDL Loans

(Economic Injury Disaster Loans)

The Economic Injury Disaster Loans (EIDL) program was the first federal small-business assistance program activated to fight the economic crisis caused by the coronavirus pandemic.  It is different from the $660 billion Paycheck Protection Program in that it has fewer restrictions on how the loan funds can be spent, and loans are processed by the government rather than private banks.

The Small Business Administration (SBA) eventually outsourced a lot of loan applications to Rocket Loans and other consultants, and it shortened the loan approval process.  The SBA approved billions of dollars in loans.

I. About EIDL Loans

The stated purpose of COVID-19 EIDL loans and advances was to help small businesses with their shortages of cash and with financing for working capital.

EIDL loans were given to pay operating expenses, including payroll, rent, mortgage, utilities, and other business expenses, and to pay business debt.

II. General Loan Eligibility Requirements

The following are the basic requirements to be eligible for an EIDL:

• Substantial economic injury, making the business unable to meet its obligations and pay its ordinary operating expenses.
• The need for working capital for small businesses impacted by a disaster. 
• EIDL was available to businesses when the SBA determined they are unable to obtain credit or financing elsewhere.

III. Fraud Prosecutions

EIDL loan fraud is investigated and prosecuted federally because the EIDL program is an SBA program, and it is federally funded.  Prosecutions for fraud using federal criminal statutes include Wire Fraud, Mail Fraud, Bank Fraud, and Government Program Fraud, in Title 18 of the U.S. Code.

Factors and evidence that federal prosecutors will consider for prosecution include:

1. Whether the loan applicant’s business was functioning prior to the application;
2. Whether the claimed lost income is a legitimate amount;
3. Whether the company applying for an EIDL loan needed financing in spite of any losses; and
4. Whether the company or person was able to obtain credit / loans elsewhere.

IV. Common Fraud Allegations in Federal Prosecutions

Common reasons that federal prosecutions seek charges and prosecutions for false representations regarding EIDL loans include:

1. Misrepresentations about the legitimacy of the business;
2. Misrepresentations about an applicant company’s historical income;
3. The amount of listed income that the company needs for expenses or capital; and
4. Misrepresentations regarding the inability to obtain lending.

V. Sentencing Guidelines Factors

The U.S. Sentencing Guidelines gives a recommended imprisonment range for persons convicted of federal charges.  Some factors that can affect the U.S. Sentencing Guidelines calculations include:

1. The dollar amounts of the fraud scheme;
2. Whether the scheme involved more than minimal planning;
3. If the misrepresentations include statements about the company helping people; and
4. Whether any of the monies were used legitimately.

VI. If You Are Under Investigation

If you or your company are under criminal investigation, seek an attorney who is experienced in federal criminal prosecutions.  Contact former federal prosecutor John Teakell, who will use his experience to defend you in the investigation and against any charges brought against you.