Lack of due diligence and fraudulent bank loan allegations

On Behalf of | Feb 10, 2022 | Firm News

Banks owe a duty of care to verify the information provided on loan applications. notes that a loan officer generally reviews “the five C’s of credit” when approving business loans. Character ranks high as a qualifier; borrowers must display trustworthiness in addition to having the capacity to repay loans.

A bank may not approve a loan if an applicant does not have sufficient capital or collateral to back up making payments during a business downturn. If market conditions do not appear favorable to sell a business’s products or services, a bank may not approve funding. A failure to review these issues may reflect a lack of due diligence.

Reviewing an applicant’s business records

Before approving an application, a bank’s underwriter may review a business owner’s purpose for funding. If it meets a lender’s requirements, an officer may then verify the information on an application.

As reported by, bank officers may confirm accounts payable and receivable records. A company’s financial statements from the past three years may also undergo a review. To complete their due diligence, lenders typically verify assets on a balance sheet and request to see an owner’s personal income tax returns.

Facing charges after a loan approval

A bank officer might approve funding without performing thorough enough due diligence. A business loan, for example, may provide cash before an officer verifies an applicant’s records. Rather than request that a borrower return funds, the bank may send the loan package to law enforcement.

The U.S. Department of Justice notes that prosecutors may file bank fraud charges based on allegations of falsified documents. Prosecutors may allege that an owner presented untrue payroll records or fraudulent statements.

Bank fraud convictions generally need proof of false documents used with the intent to deceive a bank officer. Defendants may show business records to counter allegations of unlawful conduct.

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