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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, how to recognize the warning signs of a scam, and legitimate business loan providers in the marketplace.

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.

Which business loan providers are legit?

Business lenderLoan detailsHow it’s legit
Journey Capital
  • Loan amount: $5,000 - $300,000
  • Loan term: 4 - 24 months
  • APR: 16.00% – 25.00%
  • 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 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: $4,000 - $500,000
  • Loan term: 3 - 60 months
  • APR: 6.60% - 29.00%
  • 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: 2 - 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.

How do business loan scams work?

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:

  • Steal your money
  • Gain access to your personal information and use it to apply for credit under your business name
  • Sign you up to 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.

Business loan scams to watch out for

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:

Loan phishing scams

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.

Advance fee scams

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.

Ads on legitimate websites

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.

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.

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.

Loan broker scams

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.

Government grant scams

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.

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 to debt collection scams for more information.

7 signs of business loan scams

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.

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, 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. The Better Business Bureau has also given both companies good ratings.

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 may have cause to be suspicious.

4. The lender promises guaranteed approval

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.

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, then 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? 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.

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 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.

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, 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.

How do I know if a business lending company is legit?

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:

  • Know who you’re dealing with. Find out the name of the company representative you’re speaking with and the name of the company itself. Check the company’s phone number, email address and physical address to make sure they’re real.
  • Check if they’re licensed. Check the company’s provincial/territorial licence number, if the business is required to have one (regulations vary depending on where you live). Check the licence and make sure it matches the name of the company, the physical address and the phone number.
  • 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 it 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 or loans that sound too good to be true, there are lots of warning signs that could indicate a scammer. If you notice anything that rings alarm bells, proceed with extreme caution.

What to do if you’ve been scammed

If you’ve become the victim of 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 the scammers down, 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:

  • Financial Transactions and Reports Analysis Centre (FINTRAC). Go to FINTRAC’s 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.

Contact credit bureaus

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.

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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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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