Small Business Loan Scams
Jan 24, 2019
Small business owners have a lot to worry about—dealing with suppliers, keeping customers satisfied, meeting responsibilities for their workforce. If you’re tempted to do business with a loan broker who sounds too good to be true, step back and do your homework before you sign on the dotted line.
Here are some of the popular cons currently out there:
The "advance fee scam." Someone claiming to be a loan broker asks for an up-front processing fee that can be as high as $3,000. Once you pay the fee, you never hear from the fraudulent broker again.
Personal information scams. Money isn’t the only thing criminals are after; many are after your personal information. These phony brokers generally promise low rates or instant approvals to entice you to apply. Once they have your Social Security number, credit card numbers and bank account information they’re able to get credit cards in your name to use for their nefarious purposes. Many of these companies operate out of Canada. The fake ads generally read, “Starting a small business? Need a consultant or capital? We can help!”
Bogus equipment loans or lease programs. You may get a letter or phone call saying that you are pre-approved for an equipment loan or lease. All you have to do is send in your first and/or last month’s payment. Kiss the money goodbye—the equipment never arrives.
How to avoid being taken. Be especially wary of unsolicited phone calls, e-mails or letters from prospective lenders making claims that sound too good to be true. If a prospective lender guarantees a loan without checking your credit or reviewing your business plan, proceed with caution. Also beware of lenders who cater to applicants with bad credit, who pressure you to make a decision on the spot and lenders who request payment by Western Union to foreign addresses.
However, a domestic address is not a guarantee that your money or sensitive data won't leave the country for good. Fly-by-night loan operations routinely set up P.O. boxes or mail drops in the U.S. that are then forwarded to their operations elsewhere. Never send money before you receive a product or service and remember that no transaction is safe unless you know for sure that you are dealing with a legitimate firm.
Before you do business with any prospective lender, check with the Better Business Bureau or state attorney general's office to see if any complaints have been filed against them. Request the lender’s financial statements, specifically assets and capital. Take advantage of local resources like the Small Business Development Corporation (SBDC), small business clubs, networking and minority business groups for recommendations of trustworthy lenders.
The reality is that many entrepreneurs have less than perfect credit. If you are among them, do not let your guard down because you think your options are limited. While having poor personal credit presents real challenges, there are many legitimate programs that loan to businesses and business owners with credit issues. If you devote some time to researching lenders who are friendlier to applicants with some flaws in their credit reports you’re sure to find a reputable, reliable credit source.
Used with permission. For additional information, visit www.allbusiness.com