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How to avoid business loan scams

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

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.

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 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.

7 signs you’re being scammed

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.

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 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.

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. 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.

3 online business loan scams to watch out for

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:

  • 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, actual, physical locations (not just P.O. Boxes or mailing addresses) and provincial or territorial 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 government 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 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:

  • The name of the company representative you’re speaking with and the name of the company itself
  • The company’s provincial/territorial license number, if the business is required to have one (lenders who loan money secured by real estate are required to have a licensing 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. Check the Better Business Bureau website to see if the company is rated.

Compare legit business loan providers

Name Product Interest Rate Loan Amount Loan Term Minimum Revenue Minimum Time in Business Loans Offered
SharpShooter Funding Business Loan
Prime pricing from 9.00%
$500 - $250,000
6 - 120 months
$10,000 /month
100 days
Unsecured Term, Merchant Cash Advance, Invoice Factoring
To be eligible, you must have been in business for at least 100 days with a minimum of $10,000 in monthly deposits.

SharpShooter provides capital to small businesses that are underserved by banks and credit unions. It measures overall business health and potential rather than focusing strictly on traditional metrics. Fill out a simple application and get pre-approved in minutes. Receive your funds within 24 hours.
Swoop Funding Business Loan
4.00% - 25.00%
$1,000 - $5,000,000
3 - 60 months
$10,000 /month
24 months
Term, MCA, LOC & more
To be eligible, you must have been in business for at least 24 months and have a minimum of $100,000 in annual revenue.

Swoop partners with banks and alternative lenders to match your business with the right funding options. Register for free and browse your offers without affecting your credit score.
Lending Loop Business Loan
Starting at 4.96%
$1,000 - $500,000
3 - 60 months
$8,500 /month
12 months
P2P
To be eligible, you must have been in business for at least 12 months and have a minimum of $100,000 in annual revenue.

Lending Loop is Canada’s first regulated peer-to-peer lending platform. Complete an application in 5 minutes. Once you accept your loan offer, investors will begin to fund your loan on the marketplace. Your loan will be transferred to your bank account when it is fully funded.
OnDeck Business Loan
8.00% – 29.00%
$5,000 - $300,000
6 - 18 months
$10,000 /month
6 months
Secured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months with a minimum monthly revenue of $10,000.

OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.
Loans Canada Business Loan
Prime Pricing from 9.00%
$2,000 - $350,000
3 - 60 months
$4,166 /month
100 days
Unsecured Term
To be eligible, you must have been in business for at least 100 days, have a credit score of 410+ and show a minimum of $4,166 in monthly deposits ($50,000/year).

Loans Canada connects Canadian small business owners to lenders offering financing up to $350,000. Complete one simple online application and get matched with your loan options.
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Compare up to 4 providers

What to do if you’ve been scammed

If you’ve become the victim of a business loan scam, there are 3 main things you need to do:

Try to recover your losses

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.

Report it

  • Financial Transactions and Reports Analysis Centre (FINTRAC). Go to FINTRACs complaints page to submit the details of the scam. They will investigate the “business” of concern and connect with the appropriate authorities (such as the RCMP) to open an investigation if necessary and put an end to the “business’s” harmful practices.
  • Canadian Anti-Fraud Centre (CAFC). You should report your concerns to the CAFC. You can also visit the CAFC website to learn more about common scams and ways to avoid them.
  • The Royal Canadian Mounted Police (RCMP). If you’re not sure what to do if you or someone you know has been scammed, go to the RCMP’s website where, similar to the CFAC, you can get detailed information on what to watch out for and how to report fraud.
  • 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.

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. 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.

Frequently asked questions about business loan scams

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