Small businesses are more susceptible than ever to business loan scams. Many different types of funding options are now available via the Internet, and many companies have taken advantage of them to get loans, but at the same time, scammers have seen this as a gold mine of opportunity.

"Over the last several years, the explosive growth of the online alternative lending industry has made it easier than ever for small business owners to access the funds they need to make their business goals a reality," says Priyanka Prakash, a Senior Staff Writer at Fundera. "Unfortunately, this also has meant an increase in business loan scams over the internet and other channels."1

Prakash cites a survey2 from earlier this summer by the Better Business Bureau and the Federal Trade Commission, which found 67 percent of small businesses say there’s now a greater risk of scams than there was three years ago.

1. Advance Fee Scams

Advance fee scams make promises of cheap debt relief if the target provides a payment in advance as an "application fee,” a "processing fee," or something similar. As you might expect, they take your money and run without helping you.

To avoid getting scammed in this manner, Fraud.org, a project of the National Consumers League, a century-old nonprofit advocacy group, says not to pay upfront, not to trust a lender who contacts you by phone, and to do business only with licensed companies.3

2. Peer Lending Scams

Plenty of businesses have had success with peer lending, but scammers know this, and can pose as potential lenders, offering funding without a credit check. Don't fall for it.

"Outright peer lending scams are not yet as common as hearing you are the sole heir to the throne of Nigeria, but they are becoming more popular," says Joseph Hogue at peerfinance101.com.4 "The scams I’ve seen range from sky-high interest rates that break the law to just plain theft." These scams may also ask for upfront payments, request wire transfers, and/or promise rates before credit checks or applications.

3. Consultancy Fee Scams

A consultancy fee scam is essentially when someone reaches out to you to "help" you obtain a loan. The premise is that getting a loan is a complex ordeal, and that you need a consultant to help you get a better deal, when in actuality, you don't.

4. Funding Kit Scams

Funding kit scams are similar to consultancy fee scams in that they promise ways to help you through the funding process. These specifically offer a "kit" to help you obtain funding, whether through loans or seemingly too-good-to-be-true grants. Both of these types of scams may seem legitimately helpful to those with little understanding of finance, but they're designed to dupe you out of money rather than make any significant difference to your obtaining it.

5. Credit Repair Scams

Most people know that your chances of getting a loan – especially one with a good rate – are in part dependent on your existing credit score/history. It's no surprise that scammers take advantage of this, and offer those in need of a loan a way to help them quickly repair their credit. Some claim to be able to bump your score up by a hundred points in a week or less. That's usually not going to happen. Don't buy into it.

6. Ghost Investor Scams

Ghost investor scams generally come in the form of messages informing the target that the sender has some unnamed investor interested in providing a large amount of money to put into the business. Of course, all they need is that fee to set it all in motion! Don't be fooled. If it seems unlikely, it probably is.

Even though more scammers than ever are preying upon those seeking business loans, the good news is that they are relatively easy to avoid if you use common sense and maintain a sense of skepticism. If you want to avoid business loan scams, go to a trusted source, such as Nevada State Bank.

 

1. https://www.fundera.com/blog/business-loan-scams

2. https://www.bbb.org/globalassets/local-bbbs/council-113/media/small-business-research/bbb_smallbizscamsreport-final-06-18.pdf

3. http://www.fraud.org/advance_fee_loans

4. http://peerfinance101.com

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC