Business Loan Scams are on the Rise: What You Need to Know Now
The internet has opened an unprecedented amount of connections for lenders and small businesses. But while effortless connectivity makes it easy for business owners to connect with legitimate lenders, it has also opened up innovative lines of attack for scammers. Under the guise of offering help or guidance, these crooks ask for money, personal information, and even bank account numbers and immediately use them to steal from hardworking small business owners.
Those new avenues of attack involving business loan scams have made some business owners feel hesitant or even outright resistant to using the internet to secure funding. But avoiding internet lending because of scammers means throwing the baby out with the bathwater. Today’s online lending marketplace is rife with opportunity for borrowers to get the loans they need for their businesses to succeed. How can they avoid the loan scams proliferating the internet today? What are the red flags to watch for? And what can business owners do if they do fall victim to such a scam?
Types of Online Business Loan Scams
There’s a wide variety of online business loans available, which gives scammers plenty of foliage in which to hide. Here are just a few of the common online scams you may encounter as a small business owner (and the red flags that might help you spot them).
1. Credit Repair Scams
Not everyone has perfect credit. If your business credit score isn’t quite where you’d like it, that can be a major hindrance for your company’s continued success. Many entrepreneurs work tirelessly to improve bad credit. Scammers know that. So they’ll reach out to business owners with an offer that seems too good to be true: for just a small upfront fee, they’ll work with credit agencies to clean up your credit history and boost your score by hundreds.
If it sounds too good to be true, it likely is. And definitely is here. You’ll send them their fee and your credit score will remain untouched. In fact, the only financial change you’ll see is the money leaving your account.
Red Flag to Avoid: Offering the impossible
If an entity or person reaches out and claims they’ve got the ability to magically boost your credit score, remove that missed payment, or otherwise change the undeniable facts in your credit history, your ears should perk up. It may be a scam.
2. Advance Fee Scams
For some money upfront, the scammer says, they’ll be able to complete your application for a business loan beyond your wildest dreams. Despite your poor credit, and the fact that you’ve never heard of this lender before, they’re offering a low interest rate, plenty of capital, and a generous repayment term. You send the money along, and the scammer makes off with it. That’s an advance fee scams, and they’re among the most common lending scams you’ll find. They pray on borrowers looking for the perfect loan, and do so because they know that any legitimate lender will require fees for any small business loan. Fees are part of the process. So they wear the mask of a legitimate lender with legitimate fees. It can be easy to find what seems to be the perfect loan from a small online lender, and then pay a large application fee for a loan that doesn’t even exist.
Red Flag to Avoid: Not much information online
Legitimate lenders will have plenty of information available online. Company’s engaging in business loan scams are notorious for hiding their identities and location…for obvious reasons. Maybe the only information you could find about this lender was a poorly-written Craigslist post, or maybe they have a good-looking website with lots of rapturous testimonials, but no mention on a legitimate financial website.
3. Ghost Investors
Imagine opening your email to find an officer from a reclusive billionaire hoping to send along hundreds of thousands of dollars as an investment in your company. Excellent news! All you’ll need to do is send over your credit card numbers, maybe your bank account numbers, and your social security number, just to ensure you’re the real owner of the company. Now that you’ve sent all that information along, you find fraudulent loan applications, charges, and other telltale signs of identity theft.
Red Flag to Avoid: Unsolicited Contact
Convincing an investor to purchase equity in your company is extremely difficult. Far more difficult than simply opening your email page. If you’ve received an unsolicited request for confidential information, proceed with extreme caution this is likely a business loan scam or other deception..
4. Consultant Scams
Finding the right business loan is tough. There’s all sorts of financial information you need to understand, a complicated credit report to examine, and you’d be better of spending that time working on your business. Crooked loan brokers will sell you a similar pitch in order to take money from you in order to “help” you navigate the process of procuring a loan. Of course, they’ll need a fee up front in order to get you the best terms.
Red Flag to Avoid: Asking for money up front
Reputable lenders will often work with loan brokers, but real loan brokers take a commission. If an unsolicited consultant or loan broker is offering services for an upfront payment, tread lightly.
5. Funding Kit Scams
Perhaps the distant cousin of the consultant scam is the funding kit scam. These scammers will assure you that the process of securing a business loan is simply too complicated. They’ll sell you a kit that’ll simplify the process of getting that much-needed loan or government grant. And when you ask to speak with an agent or other salesperson, they just can’t seem to give you a physical address where you can meet.
Red Flag to Avoid: No physical address
Legitimate lenders will always have an office space from which they operate. Always. If an online lender is only offering you a PO box (if any location at all), that’s a sign that you may not be working with a legitimate lender. If you’ve got questions about the legitimacy of a lender, contact the Better Business Bureau (BBB), who will be able to help verify any information you may need.
The bottom line:
Don’t share confidential information with a lender you haven’t fully confirmed is legitimate. If they’re contacting you without solicitation offering terms that are simply too good to be true, like guaranteed approval, effectively zero interest, or can’t provide a physical address, these are warning signs that you’re not going to end up with a legitimate loan.
My company has been scammed. Now what?
Scammers can be incredibly sophisticated, and mistakes happen. You thought it was a credit check, and now you’re a victim of identity theft. You thought it was a processing fee, but now you’re out $10,000 and the supposed lender isn’t returning your calls. It happens. Thankfully, there are multiple ways to fire back and help prevent future scams.
1. Contact the police, the Consumer Financial Protection Bureau (CFPB), and the BBB
These scammers have committed a crime, and you shouldn’t hesitate to inform the police of their actions. You might not be the last business owner they attempt to swindle, but you can help your local law enforcement to make sure you’re their last successful attempt.
In addition, contacting other business bureaus, like the federal Consumer Financial Protection Bureau will help make sure the public is aware of the scam and the false front the scam artist has put up.
2. Contact the Federal Trade Commission (FTC) if your identity was stolen
The FTC will help you take the appropriate steps to reclaim your identity and repair the damage the scammers may have done.