Looking for Online Business Financing? Watch Out for Scams
Recently I wrote about how aged corporations can be a tool for building business credit. Unfortunately some companies are using them to promote high-priced “lending” services that are nothing more than a small business version of the classic advance fee loan scams.
Case in point: An entrepreneur recently shared his experience with a company he found online that promised him financing for his venture. Essentially he was told he would be acquiring an aged corporation that would immediately provide him with significant funding through an extensive network of private lenders and investors. He was presented with several options, all with fees ranging from $5500 to $9995 upfront. The “deal” he took was as follows:
Corp #1: $3M revenue with tax returns. $1.5M in profits. Funding in 7 days of $1.65M Fee: $9,995.00 (payment in full required to retain the rights to use for funding purposes)
He’s sent the company his fee of $9,995 and is now awaiting funding promised to him in 7 business days.
Of course, I have zero confidence that this “deal” will come through. In fact, I will not be surprised if this person is told he needs to come up with more money before the deal can "close."
I was discussing this story with my colleague Erik Salmon, a business credit consultant who has seen these kinds of scams more than once over the years. Erik replied with an answer that I thought would serve as a useful warning for other business owners who might be looking for business financing online.
“That last deal is not going to fund, I have never seen any of these type of deals fund. If you could just pay a broker fee, buy an aged corporation and get millions in funding, the business credit industry would look a lot different.
One red flag for me is that this person’s business associate found a listing on Craigslist. I don’t know about you, but if I were able to deal with high dollar funding deals, I would not be posting them on Craiglist. That’s where you go to advertise to unsophisticated business owners who make easier marks for scams.
Another read flag is there was no mention of any type of qualification process other than the paying the broker fee and buying an aged corporation. Saying a company has “financials” is not saying much. How did the company get financials? What lender or investor is going to provide high dollar funding just on financials? There has to be a physical location, employees, assets, business history, etc.
Another red flag is the domain registration information. It looks like to me that they just registered the site not that long ago, and it is expiring in September. Typically if a business plans on staying around - and for search engine optimization purposes - you register a domain for 5-10 years minimum, see below:
Domain Name: (removed for this post)
Registrar: GODADDY.COM, INC.
Whois Server: whois.godaddy.com
Referral URL: https://registrar.godaddy.com
Name Server: DNS1.MIDPHASE.COM
Name Server: DNS2.MIDPHASE.COM
Status: clientDeleteProhibited
Status: clientRenewProhibited
Status: clientTransferProhibited
Status: clientUpdateProhibited
Updated Date: 18-dec-2009
Creation Date: 30-sep-2008
Expiration Date: 30-sep-2010
Here’s another red flag. If the funding is supposed to be going for the aged corporation, then the time line doesn’t make sense. This person sent in his fee and is told to expect funding in a few days. That’s not enough time to get that aged corporation qualified in his state and open a bank account. No legitimate lender or investor is going to write this guy a personal check for that amount. It doesn’t make sense.
One thing I would recommend this person do is check with the Department of Corporations to see if this company is a licensed lender or broker. In most states, you need to be licensed to broker loans. Even if they are not brokering a loan, the fact that they are brokering period would likely require them to be licensed.
It kills me to see someone just fork out that kind of money for a short cut instead of doing it the right way. He’s just hoping this isn’t a scam, but it very likely is.”
If this were the only story like this that I have heard, I might not even bother posting this warning. But I’ve heard numerous stories like this on the Credit.com forums, on radio shows and in referrals from financial professionals. If you’ve ever been the slightest bit tempted to work with a loan broker or “private” lender you find online, do your homework. Legitimate lenders won’t mind the scrutiny.
Gerri Detweiler’s mission is to provide reliable, unbiased answers to your credit questions. She is the co-author of Business Credit Success: Get on the Financing Fast Track and serves as Personal Finance Advisor for Credit.com.
