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Business loans are essential for many businesses, but business lending is also a hotbed for scams. Scammers work from both inside and outside of the US to separate business owners from their money by taking advantage of people who don’t know how the process works or what to expect.
Fortunately, you can stay safe by learning about what to look out for and some of the tricks often used by scammers.
If you're dealing with a shady company that is trying to get your money, it's important to cease contact with the lender or scammer immediately. You should report the scam to the Federal Trade Commission and Better Business Bureau and then file a report with the police.
The Small Business Administration (SBA) warns small business owners that they will never reach out by email or phone asking you to apply for an SBA Paycheck Protection Program (PPP), 7(a) or disaster loan or grant.
“Fraudsters have already begun targeting small business owners during these economically difficult times,” the agency warned. “If you are proactively contacted by someone claiming to be from the SBA, suspect fraud.”
Here are a few tips to keep you safe from fraud when dealing with unsolicited emails or phone calls from people claiming to be from the SBA or another government agency:
If you come across what appears to be a scam, you can report it to the SBA Office of the Inspector General by calling 800-767-0385 or filing a complaint online.
You can learn even more about coronavirus scams to watch out for with our guide.
There are a few red flags to look out for if you think you’re being scammed. If you encounter even one of these, it usually means your so-called lender wants to take your money, not give you some.
There’s never a reason to pay a lender or broker before you borrow. It doesn’t matter what reason they give — be it administration fees, credit check costs, processing costs or anything else.
Some lenders might have origination fees or costs, but these are only charged once your loan is funded — and they’re deducted from the amount of funding you receive or incorporated into the cost of the loan. A lender should never ask for a down payment or other significant upfront costs before approval, and a loan broker should only ever get paid by the lender, in commission, after the deal is done.
If any loan officer or lender wants money upfront, be cautious and consider finding another lender.
Avoid lenders who don’t have a physical address or easily-found contact information. Even lenders that are solely online like National Business Capital and SmartBiz have clear and easy-to-find contact details and headquarter locations that indicate their legitimacy.
It’s sad to say, but if a deal looks too good to be true, then it probably is. Lenders are competing with each other and are constantly trying to offer better rates and loan conditions to attract more business, but they have limits as to what they can offer without losing money.
If there’s one lender that seems to be offering a deal that exceeds other deals, you may have cause to be suspicious.
No lender can guarantee that you’ll be approved for a loan. When a business offers customers a guarantee, that’s a binding promise they must deliver on.
Without submitting your business application, you shouldn’t trust any guaranteed loan. If you don’t have to submit an application and have your business or personal credit checked, look elsewhere for funding. It’s likely you’ve found a scam.
If a business lender is emailing you from a Gmail, Hotmail, Yahoo or other generic email account, then something is off and you should tread carefully. Lenders should be conducting all business with an official business email address.
But also be wary of the specific email address in your inbox. Misspellings or similar names are also common tactics. If you receive an unsolicited email from a lender, visit its website and confirm the email on its contact page matches the email you received. If something seems off, delete it without opening it — some emails contain harmful links that can compromise your computer’s security.
If a lender offers you an unsolicited loan, it may be a sign of a scam. Lenders don’t offer loans with a cold call.
And while they might send promotional letters in the mail or display ads on your browser, these are based on some background information on you. Similarly, you should also be aware of services you don’t want and didn’t ask for, like business plan writing or credit repair. Although these are legitimate services in their own right, they’re generally not offered without prompting.
If your lender is contacting you frequently, trying to rush you into a decision, offering free gifts or throwing around phrases like “limited time only” or “last chance” — it may be a scam. Legitimate lenders make their money from offering sensible options that you can repay as planned.
While you may encounter legit lenders who want to push you toward a decision, scammers make their money by rushing people into bad decisions with big promises and then running away with the money.
The Small Business Administration (SBA) warns small business owners to look out the following red flags when applying for one of its loan programs.
As a business owner, you need to be wary of scams at all times. Once you’ve borrowed a business loan, be aware of these two scams — especially if your business is struggling to handle its debts.
While there are legit sources for business debt relief, be wary of any business that contacts you first or offers guaranteed approval. Debt settlement and debt management companies will charge a fee, but this should only be after they reach out to your creditors and negotiate a deal.
Be sure to look into the debt relief company thoroughly to confirm its legitimacy, and consider refinancing your business debt instead. It may not reduce what you owe, but it can make it easier for your business to afford monthly repayments.
While a legit lender will contact your business if it has fallen behind on payments, it won’t use threatening language or pressure you into sending funds. If you receive a call or email that states you need to make payments immediately, may be arrested or have legal action taken against you, ignore it. You should also reach out to your lender — it may be able to work out a repayment plan or offer some guidance to help you avoid falling for high-pressure debt collection tactics in the future.
Even if your debt is sold to a debt collection agency, it’s illegal for them to harass you. Keep tabs on your debt — even if you default — and report any malicious collection tactics to the FTC. If your lender decides to pursue legal action against your business, you will receive official notice, not harassing phone calls.
Compare legit business lenders now
It depends. There are plenty of legitimate online lenders that might ring your alarm bells if you’re used to dealing with banks. There are also fake online lenders that look professional at first glance.
It’s important to remember that there’s a difference between a scam and a bad deal. Not all lenders with low credit requirements, for example, are going to run off with your money or Social Security number. But you could end up in a cycle of debt if you can’t afford to make payments — something you might also want to avoid. Hold online lenders to the same standard as you would a bank or credit union to avoid both scams and bad deals.
Crooks are getting increasingly tech-savvy when it comes to taking advantage of the unwary. This lets them strike at US business owners from outside the country and steal not only money but also valuable personal information. You may be approached with:
Scammers will typically use a few tricks to keep it and create the illusion of legitimacy, like:
Scammers can fake legitimacy in a few different ways, but there will always be signs to look out for. The trick is to make sure that everything adds up. You should know:
If the lender has these, look for anything that doesn’t match. Then follow these steps:
If something doesn’t match up or doesn’t seem right, drop the lender. There are plenty of legit options out there — so don’t rely on any lender or company that gives you a bad feeling.
If you’ve become the victim of a scam, there are three main things you need to do:
If you sent money or information to a scammer, contact your bank immediately. It can cancel any future transactions that may be in the works and close your account if you’ve sent the scammer any information that may have compromised it.
Sadly, most scam victims won’t see their money again. This is because it’s usually very difficult to track the scammers down, and in many cases, they’re overseas where American authorities can’t reach them.
If you’ve encountered a scam lender, or any other fake financial services providers, you should report them to the Federal Trade Commission and Better Business Bureau.
Scammers will often strike the same place twice. To ensure that you don’t fall into any more traps or follow-up scams, be aware of these schemes:
Because it’s rare for businesses that have been scammed to see their money again, you’re better off being proactive about protection by following this guide and only dealing with reputable, verified and well-known lenders, big banks or other established institutions.
The FTC has a scam alerts feed that can alert you of new scams and keep you updated on warning signs to watch out for. You can also place yourself on the National Do Not Call Registry to prevent unsolicited phone calls from telemarketers.
The best way to prevent falling for a scam is to know what to look for when you apply. By keeping your safety — and the safety of your business — at the forefront of every loan application, you can stay one step ahead of any potential scammers.
And even if you’ve become a victim, there are still ways you can fight back, even if you can’t recoup your losses. You should also be aware of some common personal loan scams since falling victim to one could impact your business.
When looking for a loan, it’s best to know where to find legit lenders to avoid a potential business loan scam.
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I’m having an agreement with a funding company and I don’t know if they are legit or not. I might need help with that.
Hi Karim,
Thank you for getting in touch with finder.
I suggest that you personally seek help from some financial experts on this matter. Since you’re from Egypt, it would be a good idea to check some government agencies that can assist you on checking this funding company’s background or record.
I hope this helps.
Thank you and have a wonderful day!
Cheers,
Jeni
Hi how will you know if hoopla loan is registered with NCR
Hi Mpho,
Thanks for reaching out to finder.
Hoopla Loans is not a lender but an online loan matching broker so they will really not be registered with NCR. They help by connecting borrowers to lenders on their panel and as per Hoopla Loans, all the lenders in their panel are licensed by the NCR.
If you want to check if a lender is registered with NCR, you can go to their website and search their database using the name of the lender you want to verify.
Cheers,
Charisse