BBB Advises Cash-Strapped Small Business Owners Against Using Shelf Corporations to Deceive Banks and Attain Loans

July 01, 2009

While businesses find it increasingly more difficult to qualify for loans and lines of credits, small business owners are resorting to applying for loans from behind the façade of shelf corporations. Better Business Bureau is advising small business owners that, as tempting as these schemes sound, using a shelf company in order to misrepresent your credit worthiness to a bank could be considered loan fraud.

The term “shell company” generally refers to a limited liability company and other business entity with no significant assets or ongoing business activities. The term “shelf company” refers to a shell company that is created and maintains little or no activity—or put on the “shelf” to season. The shelf company can then be sold to someone wishing to start a company without going through steps to create a new one.

Companies that create and sell shelf corporations often recommend to the buyer that they will be able to use the creditworthiness and business history of the shelf company to obtain credit for their business. The companies also recommend that buyers can exploit the age of the shelf company to get government contracts—which usually have requirements for how long the company has been in business.

“Small business owners are finding it harder and harder to attain loans and lines of credit, and relying on a shelf corporation to portray a better picture of financial health and stability is an increasingly enticing, and deceptive, option,” said Steve Cox, BBB spokesperson. “Not only could the scheme prove unsuccessful and a waste of money, but the business owner could be found guilty of loan fraud and lose everything they’ve worked so hard to attain.”
While the scheme may be tempting to small business owners who are strapped for cash, the possible outcomes far outweigh the potential benefit. Many banks are growing increasingly stringent when handing out loans and could see through the ruse and deny the loan; which means that the small business owner wasted thousands of dollars on the scheme. Also, the bank will likely require a personal guarantee and since the scheme doesn’t actually increase the business’ creditworthiness, the bank could come after the owner’s personal assets if he or she defaults on the loan. In the worst case scenario, the small business owner could be found guilty of loan fraud, face the penalties and be required to pay the money back.

One such business selling shelf corporations to struggling business owners recently came to the attention of the BBB serving Northeast California. The business was selling shelf companies for a fee of $7,500 upfront or 20 percent of the loan received. Potential borrowers were advised to request a line of credit below $150,000, suggesting that bank underwriting standards at this level are less stringent. The business recommended which banks the borrower should apply to and promised that the borrower will not have to provide business or personal financial statements, income tax returns or personal guarantees, and that the lending financial institution will not pull a personal credit report.

A BBB representative spoke with the owner of the company who admitted that he had 60 other salesmen working across the country selling shelf companies and the secrets to his method for deceiving banks. BBB spoke with business owners who attested that they had a difficult time getting loans for their small business but successfully received loans under the identity of the shelf corporation.

Instead of resorting to deceptive tactics to get a loan, BBB advises small business owners to learn more about the Small Business Administration’s new America’s Recovery Capital program which provides no-interest, deferred-payment bridge loans to struggling businesses. Information is available online at

For more advice on managing the finances of a small business, visit