If you need a business loan, there are plenty of legit online lenders that can help. Unfortunately, you’ll also need to watch out for business loan scams.
In this guide, we’ll show you some common business loan scams, how to recognize the warning signs of a scam, and legitimate business loan providers in the marketplace.
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.
| Business lender | Loan details | How it’s legit | |
|---|---|---|---|
 |
|
| |
 |
|
| |
 |
|
| |
 |
|
| |
 |
|
| |
 |
|
|
Business loan scams work in several different ways, but they exploit one key weakness: your need for fast, convenient and cheap business financing.
Scammers pretend to be legitimate business lending companies so they can:
And these business loan scams can be a lot more sophisticated than many small business owners expect. Let’s take a look at some common business loan scams to avoid.
Scammers have become increasingly tech-savvy when it comes to taking advantage of the unwary. This lets them strike at Canadian business owners and steal not only money but also valuable personal information. Types of scams include:
Scammers create sophisticated websites that look like the sites of legitimate lenders. They use this to lure you into filling out a loan “application” with sensitive personal and financial information, then steal your money or use your data to apply for loans in your business name.
With this scam, the scammer promises to approve you for a low-interest loan — but only once you’ve paid an upfront fee. Then once you’ve parted with your money, the loan is never provided.
Just because someone is advertising an offer doesn’t mean the loan company is the real deal. Be suspicious of online ads for guaranteed approval or unrealistically good rates.
While there are legit peer-to-peer lending platforms available in Canada, illegitimate providers sometimes use platforms like Facebook Messenger and Reddit to exploit business owners. With this in mind, steer clear of any unsolicited offers for peer-to-peer loans.
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.
There are many legit business loan brokers out there who make money on lender commissions. Unfortunately, there are also some sketchy providers that require you to pay an upfront fee before they will help you find the right loan for your needs. These scammers will usually push the line that business loans are so confusing and complex that you’ll only be able to find the right loan with their expert help.
Similar to the above scam, fraudsters may try to convince you that your business is eligible for a lucrative government grant, but the application process will be far too difficult and time-consuming without their expert help.
If you’re struggling to repay a loan, be wary of fake debt collection scams and dodgy collection practices. These scams often involve the use of threats and harassment to try to get you to cough up your money. Check out our guide to debt collection scams for more information.
There are several red flags to look out for if you think you’re being scammed. If you encounter even one of the signs below, 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, 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. The Better Business Bureau has also given both companies good ratings.
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 clearly exceeds other loan offers, 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. A responsible lender will assess your business’ financial situation before deciding whether or not to offer you a loan. So 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 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? Are they 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 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 licences to confirm legitimacy.
You should also recognise 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 also want to avoid.
Yes. When you apply for a business loan, some lenders will ask for something known as a personal guarantee. This is when you, as an individual, guarantee that you will pay back what you borrow if your business defaults on the loan.
Lenders ask for this guarantee because it gives them additional protection. If your business goes under, they will hold you personally liable for paying it off, which gives the lender a better chance of recovering any losses.
As a borrower, signing a personal guarantee could increase your chances of approval and allow you to access better loan terms. However, be aware that if the business defaults on the loan, the lender can go after your personal assets. It can also impact your personal credit rating, so make sure you’re aware of exactly what a personal guarantee involves before you sign.
Telling the difference between 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. Remember these tips to help ensure that you find a legit business lending company:
If you’ve become the victim of a business loan scam, there are four 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 some cases they’re overseas where Canadian authorities can’t reach them.
There are multiple ways to report business loan scams in Canada, so consider these contact options:
Contact TransUnion and Equifax and ask them to issue a fraud alert for your credit report. This will help ensure that no new credit accounts are opened in your name.
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.
Learn about business loans and grants available to minorities.
Use our step-by-step guide to learn how business loan refinancing works, what the eligibility requirements are and how much it costs.
Find out where to get a business loan with bad credit from reputable lenders.
See which business lenders can approve a fast business loan. Turnaround times can be as short as one day.
Get business financing in as little as 24 hours with a Journey Capital loan.
Online no-doc business loans and lines of credit may be faster than your typical bank loan—but you could end up paying more.
Find out what different types of rates lenders charge and how you can compare the costs.
Compare 10 business lines of credit from trusted lenders and learn how to find funding that suits your business.
Compare business startup loans in Canada to grow your new business.
Explore the best small business loans in Canada for startups, fast funding, flexibility, bad credit, and more.
