Preserve Your Cash and Prevent Business Fraud
Businesses often have trouble with cash flow so an offer for a business loan can seem very tempting. Many unscrupulous operators take advantage of the need for access to working capital and lure business owners into scams in which they part with their money and receive nothing in return.
Naturally, business loan scams aren’t always obvious like well-known schemes involving fugitive princes with supposed stolen millions. Many fraudsters use more sophisticated methods to prey on businesses. If you’re a business owner, it’s a good idea to familiarize yourself with the most common business loan scams out there and ways to avoid them.
1. The Peer-to-Peer Lending Scam
Peer-to-peer lending is a legitimate and significant source of online financing for small businesses. As any popular financing method is likely to do, however, it has attracted a few shadowy operators. These characters work by cold calling business owners and offering them peer-to-peer financing. The catch is that they ask you to pay an upfront arrangement fee, or a fee to enable them to conduct background checks on you to get you to qualify. While the fee is what the scammers are after, they also profit by selling the personal information that you give them on the black market.
2. The Business Angel Scam
The business angel trick is a variation on the peer-to-peer lending scam. You are contacted, unsolicited, by someone who claims to be a wealthy investor. They say they’ve been researching businesses in your niche for potential investment opportunities, and are impressed with your work. What you need to do to qualify for an angel investment is to pay a fee for due diligence. The scammers profit by charging you the fee and never delivering on the business loan or investment promised.
3. The Loan Broker Scam
A loan broker is a legitimate professional who understands the loan products offered by various lending agencies better than the average business owner. They help businesses identify the right loan products for their needs, and prepare the paperwork to help them through a trouble-free application process. Brokers who are legitimate obtain their commission from the lenders who approve loans for businesses. Unscrupulous brokers, on the other hand, ask the businesses that they deal with for an upfront fee. It’s never a good idea to pay a loan broker. It’s the lender who pays them.
4. The Consultancy Fee Scam
Business loan consultants aren’t strictly a scam, but what they offer does represent a waste of your money. A consultant calls you and asks you if you are in the market for a business loan. If you are, they tell you that applying for and qualifying for one can be exceedingly complicated, and you aren’t likely to succeed heading in by yourself. They offer you their services, to help you apply for the loan, put together the documentation required, prepare for the interview, and so on. The scam is simply that they lead you to believe that you wouldn’t stand a chance if you tried to apply for a loan without their help.
5. The Credit Repair Scam
In most cases, businesses that have only been around for a couple of years have less-than-stellar credit scores. It simply takes longer to build solid credit. Many scam artists, however, approach such young businesses, and tell them that they have special expertise and the tools necessary to help them build up their credit so that they are able to qualify for loans on better terms. In reality they have nothing useful to offer, but still charge a substantial fee. If you want to improve your poor credit score or to fix any errors in your report, Money.com has prepared a list of the Best Credit Repair companies of 2021.
The Bottom Line
In general, if you’re cold-called by someone who wants to arrange for a business loan for you, or make it easier for you to qualify for one, it would be a good idea to be alert. If they ask for payment upfront for any reason, you should do the smart thing and stop dealing with them. In general, it’s a good idea to not attempt to secure loans from people who do not have physical business premises, who use generic email addresses, or who try to pressure you into signing up by telling you that their offer is only good for a short period of time.
If you happen to fall prey to one of these scams, don’t hesitate to report the incident to the local or federal authorities.
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About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.