Avoid these business loan scams and compare legit lenders

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

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, what to do if you fall victim and which lenders are legit in Canada.

Think you've encountered a scammer?

If you’re dealing with an unscrupulous company that’s trying to get your money, stop dealing with the lender or scammer immediately. Report the scam to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the Canadian Anti-Fraud Centre (CAFC), your bank and the local police.

Which business loan providers are legit?

Business lenderLoan detailsWhy it’s legit
Journey Capital
  • Loan amount: $5,000 - $300,000
  • Loan term: 4 - 24 months
  • APR: 8% – 29%
  • Has loaned over US $14 billion to businesses globally.
  • Founded in the US in 2007 and launched in Canada in 2015.
  • US parent company is BBB accredited with an A+ rating.
  • Has featured in a wide range of financial news publications and websites.
  • 4.8/5 stars based on over 75 Trustpilot reviews.
Merchant Growth
  • Loan amount: $5,000 – $800,000
  • Loan term: 6 – 24 months
  • APR: 12.99% – 39.99%
  • Has funded over 8,000 businesses.
  • Headquartered in Vancouver and founded in 2009.
  • Member of the Canadian Lenders Association.
  • Founder David Gens recognised by Business in Vancouver (BIV) in its “Top 40 Under 40” list. In 2018, Gens was nominated for the EY Entrepreneur of the Year awards.
  • 4.8/5 stars based on over 165 Trustpilot reviews.
Loans Canada
  • Loan amount: $500 - $500,000
  • Loan term: 3 - 60 months
  • APR: 6.99% - 46.96%
  • BBB accredited with an A+ rating.
  • Operating since 2012.
  • Member of the Canadian Lenders Association.
  • Has featured in CBC News, the Toronto Star and the Financial Post.
SharpShooter Funding
  • Loan amount: $1,000 - $300,000
  • Loan term: 12 - 60 months
  • APR: 5.49% - 22.79%
  • Established in 2015 and headquartered in Toronto.
  • Has an A+ rating from the Better Business Bureau.
  • Member of the Canadian Lenders Association.
  • 4.7/5 stars based on over 65 Google reviews.
Driven
  • Loan amount: $5,000 - $300,000
  • Loan term: 3 - 24 months
  • APR: N/A
  • Has loaned over $1 billion to 17,000 Canadian businesses.
  • Founded in 2006 and based in Toronto.
  • 4/5 stars based on over 810 Trustpilot reviews.
Clearco
  • Loan amount: $10,000 - $10 million
  • Loan term: Undisclosed
  • APR: 6.00% - 12.00%
  • Founded in 2015 and based in Toronto.
  • 3.9/5 stars based on over 300 reviews on Trustpilot.
  • Featured on platforms such as Forbes and Business Insider.
  • Has funded over 7,000 businesses.

Small business loan scams: How they work

Business loan scams work in several different ways, but they exploit one key weakness: your need for fast, easy and cheap financing. In particular, scams often target:

  • New businesses with limited credit history that may struggle to qualify for traditional financing
  • Businesses with bad credit that can’t get funding from a bank or credit union
  • Business that are struggling financially and need an emergency loan

Scamers pretend to be legitimate business lending companies so they can:

  • Steal your money
  • Gain access to your personal information and use it to apply for credit under your business name
  • Sign you up for a loan you can’t afford to repay

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.

Small business loan scams to watch out for

With the rise of online lenders, it’s easier than ever before to apply for a business loan. Unfortunately, it’s also easier to fall victim to a scam. Here are some common business loan scams to watch out for.

Business loan phishing scams

Scammers create sophisticated websites that look like the sites of legitimate lenders or government-backed business financing programs. 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 under your business name.

With the rise of online lenders, these phishing scams are becoming increasingly prevalent. There are plenty of reputable lenders that allow you to quickly and easily fill out an online application to get a loan, and it can be difficult to tell the difference between a legitimate application form and a scam.

Advance fee scams

With this type of con, 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.

Cold calls

Whether it’s through text messages, emails, phone calls or social media, beware of any lender that makes unsolicited contact with you. Don’t click links you find in emails from unknown senders or in texts from unknown numbers.

Ads on legitimate websites

Just because you see a business loan offer advertised on a legit website, it doesn’t mean that the loan company is the real deal. Be suspicious of online ads for guaranteed approval or unrealistically good rates.

Peer lending scams

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.

Loan broker scams

There are many legitimate 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.

Credit repair scams

There are legitimate credit counselling services that can help you take control of debt and rebuild your credit. Unfortunately, you also need to be aware of sketchy credit repair companies that promise to improve your credit score or remove negative listings from your credit report—but only after you pay a hefty upfront fee.

Government grant and loan scams

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.

Debt collection scams

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 on debt collection scams for more information.

7 signs of business loan scams

There are several red flags that could indicate a business loan scam. If you encounter even one of the signs below, it usually means the so-called lender wants to take your money, not loan you money.

1. The lender demands an upfront fee

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 only charged once your loan is funded. They should never ask for a down payment or other significant upfront costs before approval. If any lender wants money upfront, walk away.

You should also be wary of any lender that demands payment via an unusual method, such as cash, a gift card, prepaid card or money transfer app. If you send money using any of these methods, it can be extremely difficult to get your funds back.

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 have clear and easy-to-find contact details and headquarter locations that indicate their legitimacy.

3. It sounds too good to be true

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 have cause to be suspicious. Read our business loan rates guide to find out what’s reasonable.

4. The lender promises guaranteed approval

No lender can guarantee you’ll be approved for a loan without first checking the financial health of your business. 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.

5. The lender uses a generic email address

If a business lender is emailing you from a Gmail, Hotmail, Yahoo or other generic email account, 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. Legit lenders don’t offer loans with a cold call. 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 there are legitimate companies that offer these services, they are generally not offered without prompting.

7. The lender is aggressive

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 money by rushing people into bad decisions with big promises and then running away with the money.

Are online business loans safe?

Yes—provided you deal with a legitimate lender.

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 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), association memberships and positive customer reviews on independent websites.

You should also recognize 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 else you definitely want to avoid.

How do I know if a business lender is legit?

Telling the difference between a legit lender and a scammer is easy once you know what to look for. Remember these tips to help ensure you find a legit business lending company:

  • Know who you’re dealing with. Find out the name of the company representative you’re speaking with and the name of the lender. Check the lender’s phone number, email address and physical address to make sure they’re real. Look for the padlock symbol in your web browser that indicates their website is secure. You can also check if they’re a member of any professional associations, such as the Canadian Lenders Association.
  • Read reviews. Check independent review sites like Trustpilot to find out what other customers have to say about the lender. You can also check with the Better Business Bureau to find out whether the lender is BBB accredited and whether the BBB has received any complaints about the company.
  • Watch for red flags. From making unsolicited contact to promising guaranteed approval, there are lots of warning signs that could indicate a scammer. If you notice anything that rings alarm bells, proceed with extreme caution.
  • Read the loan contract carefully. Read your loan agreement carefully before signing. Watch out for any hidden fees or discrepancies between what the lender has promised and what they are now offering you.

Is a personal guarantee legit for business loans?

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, the lender will hold you personally liable for paying off the loan, which gives them a better chance of recovering any losses.

As a borrower, signing a personal guarantee could increase your chance 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 what a personal guarantee involves before you sign.

What to do if you’ve been scammed

If you’ve fallen victim to a business loan scam, there are four 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 down scammers, and in some cases, they’re overseas where Canadian authorities can’t reach them.

Report it

There are multiple ways to report business loan scams in Canada, so consider these contact options:

  • Canadian Anti-Fraud Centre (CAFC). Report the scam to the CAFC. You can also visit the CAFC website to learn more about common scams and ways to avoid them.
  • The police. Report any fraud to the local police, so they know scammers are targeting businesses in your area. They may also provide you with an incident number that you might need for any potential insurance claims.
  • 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 others can be warned to stay away.
  • Your bank. Contact your bank to let them know you’ve been a victim of fraud, freeze your account if necessary and discuss potential ways to get your money back.

Contact credit bureaus

Contact TransUnion and Equifax to get a fraud alert issued for your credit report. This will help ensure that no new credit accounts are opened in your name.

Avoid follow-up scams

To ensure that you don’t fall into any more traps or follow-up scams, be aware of these schemes:

  • Telling you to take out another loan so you can repay the first
  • Claiming they can recover your losses for a fee
  • Asking you to pay for travel, accommodation or other costs so they can “find the scammer” or “get your money back”

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. Perform due diligence to make sure you only ever deal with legitimate lenders. Even if you’ve become a victim, there are still ways you can fight back, even if you can’t recoup your losses.

Frequently asked questions about small business loan scams

To make sure you get accurate and helpful information, this guide has been edited by Leanne Escobal as part of our fact-checking process.
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Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio

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