The Challenge
A business owner held a significant stake in a group of related companies operating in several states. When a dispute broke out among the partners, he learned that several of the companies had taken out Small Business Administration (SBA) loans totaling millions of dollars. He had been told little about them.
SBA lenders generally require borrowers to disclose every owner holding 20% or more of a business, and those owners are typically required to guarantee the loan. Our client owned well above that threshold in several of the companies. Yet he appeared on some loan applications and was absent from others. He also questioned whether he had ever authorized certain documents that carried his name.
His counsel needed answers to three questions:
- Which companies borrowed, how much, and under whose names?
- Did the applications accurately disclose ownership?
- Where did the loan proceeds actually go?
The records were scattered across multiple entities, banks, and jurisdictions, and the other partners controlled most of them.
Our Approach
We started by building an ownership map. Using operating agreements, state business filings, tax returns, and capitalization records, we documented who owned what percentage of each company, and when. This became the baseline against which every loan document was tested.
Next, we assembled a loan inventory. Through discovery and lender records, we identified each SBA loan: the borrowing entity, the lender, the amount, and the owners and guarantors listed on the application. We compared each application against the ownership map, company by company.
Then we followed the money. Using bank statements for each entity, we traced the loan proceeds from the day they were deposited. We tracked transfers between the related companies, payments to individuals, and spending that didn't match the loans' stated business purpose.
Where documents bearing our client's name raised authenticity questions, we compared them against his known business records and the timeline of events. We also recommended that counsel retain a qualified forensic document examiner, since signature analysis is a separate discipline from forensic accounting.
The Findings
The analysis turned a confusing collection of entities into a clear picture.
- Ownership didn't match the applications. Several loans omitted our client even though the ownership records showed he held a guarantor-level stake in the borrowing company. Other loans in the same family of companies did list him. That inconsistency itself raised questions about how and why the applications were prepared.
- Money moved between the companies. Proceeds borrowed by one entity were transferred to others within the group, including companies where our client's ownership interest was different. That made it essential to trace each loan separately rather than treat the group as one business.
- Some uses needed explaining. A portion of the proceeds went to payments that the available records couldn't tie to the business purposes stated in the loan documents.
- The documents raised authenticity questions. We identified the specific documents where our client's purported approval conflicted with his business records and the timeline. Those went to a document examiner for the separate question of signature authenticity.
The Outcome
Counsel used the ownership map, loan inventory, and tracing schedules to reframe the partnership dispute. Instead of arguing over vague allegations, they could point to specific loans, specific applications, and specific transfers. That evidence strengthened our client's position in resolving the business dispute and gave counsel a documented basis for deciding how to address the loan issues with the appropriate parties.
Key Takeaway
When a business operates through a web of related companies, problems hide in the gaps between them. Forensic accounting services can rebuild who owned what, what was borrowed in whose name, and where the money went, one entity at a time. For a partner who was left out, working with a forensic accountant for business disputes can be the difference between suspicion and evidence.
If your client's business partners have borrowed, transferred, or reported money without them, bring in forensic help early, before records are lost and positions harden.