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Business loans are essential for many businesses, but business lending is also a hotbed for scams. In 2019 alone, Canadians were scammed out of more than $97 million. The Better Business Bureau also reports that advance fee loan scams are increasing in certain parts of Canada.
Scammers work from both inside and outside of Canada 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 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 Financial Transactions and Reports Analysis Centre Canada (FINTRAC), the Canadian Anti-Fraud Centre (CAFC), your bank and the local police. See below for more details.
There are several red flags to look out for if you think you’re being scammed. If you encounter even 1 of these, it usually means your so-called lender wants to take your money, not give you some.
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.
Avoid lenders who don’t have a physical address or easily-found contact information. Even legitimate lenders that are solely online like Lending Loop and Merchant Growth have clear and easy-to-find contact details and headquarter locations that indicate their legitimacy. Furthermore, the Better Business Bureau has given both companies good ratings.
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 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.
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.
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.
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. Make sure you 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 Insurance Number (SIN). 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.
Crooks have become increasingly tech-savvy when it comes to taking advantage of the unwary. This lets them strike at Canadian business owners from outside the country and steal not only money but also valuable personal information. They may approach you with:
Once they have your attention, scammers will typically use a few tricks to keep it and create the illusion of legitimacy:
Separating a legit lender from a scammer is easy once you know what to look for. 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:
If you’ve become the victim of a business loan scam, there are 3 main things you need to do:
If you’ve sent money or information to a scammer, contact your bank or financial institution 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 Canadian authorities can’t reach them.
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 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. 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.
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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