How to avoid business loan scams

Don't fall victim. Know the warning signs and sneaky tactics to watch out for.

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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.

Think you've encountered a scammer?

If you’re dealing with an unscrupulous company who’s trying to get your money, it’s important to stop dealing 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.

7 signs you’re being scammed

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.

1. You’re asked for money upfront

There’s never any reason to pay a lender or broker upfront. It doesn’t matter what reason they give — be it administration fees, credit check costs, processing costs or anything else. A loan broker should only ever get paid by the lender, in commission, after the deal is done.

Some lenders might have origination fees or costs, but these are rarely a significant figure and are only charged once your loan is funded. They should never ask for a down payment or other significant upfront costs before approval. If any loan officer or lender wants money upfront, be cautious and consider finding another lender.

2. There’s no contact information online

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.

3. It sounds too good to be true

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.

4. The lender guarantees you’ll be approved

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.

5. The lender uses a generic email addresses

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.

6. The lender contacted you

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. They might send promotional letters in the mail or display ads on your browser, but even those 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 are generally not offered without prompting.

7. The lender is aggressive

Does your lender seem a bit too eager? Is it contacting you frequently, trying to rush you into a decision, offering free gifts or throwing around phrases like “limited time only” or “last chance”? Legitimate lenders make their money from offering sensible options that you can repay as planned. Scammers make their money by rushing people into bad decisions with big promises and then running away with the money.

Are online business loans safe?

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. Hold online lenders to the same standard as you would any other provider.

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.

3 online business loan scams to watch out for

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. They may approach you with:

  • Ads on legitimate websites. Just because someone is advertising an offer doesn’t mean they’re the real deal. Be suspicious of online ads for guaranteed approval or unrealistically good rates.
  • Fake websites. Sometimes scammers will create their own imitation business website and then use this to “prove” that they’re real. They might send out links to it in emails and elsewhere. It’s important to remember that having a professional looking website doesn’t necessarily mean a company is legitimate. Check for things like verified contact information and state licenses to confirm legitimacy.
  • Cold calls. Whether it’s through text messages, emails, phone calls or social media, beware of a lender that keeps dangling a website address in front of you like a fishhook. Don’t click links you find in emails from unknown senders or in texts from unknown numbers.

Once they have your attention, scammers will typically use a few tricks to keep it and create the illusion of legitimacy.

  • They will sometimes offer an a state license number that’s real, but belongs to a different, legitimate business.
  • They might direct you to a basic website with a landing page for their fake business.
  • They may ask for your contact details or personal information to “run a credit check” or “verify your identify” when they in fact plan to sell it to the highest bidder or use it for identify theft.
  • They may pose as an international group or government agency with an official-sounding fake name like The International Securities Tax Commission.

How to spot a legit business lender

Separating the two is easy once you know how. 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:

  • The name of the company representative you’re speaking with and the name of the company itself
  • The company’s state license number
  • The company’s public phone number
  • The company’s physical address

If the lender has these, look for anything that doesn’t match. Then

  • Check the license and make sure it matches the name of the company, the physical address and the phone number.
  • Call back the phone number to make sure it’s real and that you can reach the company with it.
  • Match the physical address with the license number and phone number if possible.
  • Search the company’s name online and look for any scam warnings, feedback or red flags from other business owners.

Compare legit business loan providers

Updated January 18th, 2020
Name Product Filter Values Min. Amount Max. Amount Requirements
LoanBuilder, A PayPal Service Business Loans
Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
Customizable loans with no origination fee for business owners in a hurry.
OnDeck Small Business Loans
600+ personal credit score, 1+ years in business, $100,000+ annual revenue
A leading online business lender offering flexible financing at competitive fixed rates.
Efundex long-term business loans
2+ years in business, 620+ credit score, not a sole proprietorship or nonprofit, strong financial history
Financing for high-risk industries with transparent rates and terms.
Sheer Funding Business Loans
6+ months in business, 550+ credit score, $150,000+ annual revenue, eligible industry
Multiple financing options available for business owners with less-than-perfect credit scores.
National Business Capital Business Loans
Your company must have been in business for at least 6 months and have an annual revenue of at least $100,000.
Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
Kabbage Small Business Line of Credit
1+ years in business, $50,000+ annual revenue or $4,200+ monthly revenue over last 3 months
A simple, convenient online application could securely get the funds you need to grow your business.
LendingTree Business Loans
Varies by lender and type of financing
Varies by lender and type of financing
Varies by lender, but many require good personal credit, minimum annual revenue and minimum time in business
Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
Lendio Business Loan Marketplace
Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
Submit one simple application to potentially get offers from a network of over 75 legit business lenders.

Compare up to 4 providers

What to do if you’ve been scammed

If you’ve become the victim of a scam, there are three main things you need to do:

1. Recover your losses

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 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.

2. Report it

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.

  • Federal Trade Commission (FTC). Visit the FTC’s complaints page to submit the details of the scam. The FTC will investigate the “business” of concern and work to put an end to their harmful practices.
  • Better Business Bureau (BBB). Visit the BBB’s scam tracker and provide details of the scam that took place. The BBB will make the company name public so that others can be warned to stay away.

3. Avoid follow-up scams

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:

  • Offering more money or more returns to help you recoup your losses
  • Telling you to take out another loan so you can meet the repayments of the first
  • Claiming they can recover your losses for a fee
  • Asking you to pay for travel, accommodation or other costs so that they can “find the scammer” or “get your money back”

Because it’s rare for people who’ve 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, the 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.

Bottom line

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.

When looking for a business loan, it’s best to know where to find legit lenders to avoid a business loan scam.

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4 Responses

  1. Default Gravatar
    KarimFebruary 5, 2019

    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.

    • Avatarfinder Customer Care
      JeniFebruary 13, 2019Staff

      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!


  2. Default Gravatar
    MphoSeptember 15, 2018

    Hi how will you know if hoopla loan is registered with NCR

    • Avatarfinder Customer Care
      CharisseSeptember 15, 2018Staff

      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.


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