Small business loans scams are on the rise. Unscrupulous “loan brokers” are targeting business owners when they are at their most vulnerable: when they need money. Here are some of the more prevalent scams and some tips at avoiding them.
One popular con is 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. If you pay the fee, you will never hear from the fraudulent broker again.
But money is not the only thing these criminals are after; many scam artists are after your personal information. These phony brokers generally promise low rates or instant approvals to entice you to apply. With this application, they have your Social Security number, credit card numbers, and bank account information 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!”
Another scam is the 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 or first and last months’ payment. The scam is that you never receive the equipment.
Be especially wary of unsolicited phone calls, emails, 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, pressure you to make a decision on the spot, and lenders who request payment by Western Union to foreign addresses.
But even 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 less-than-perfect credit. You just have to devote some time to researching lenders who are friendlier to applicants with some flaws in their credit reports.