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Small Business Loan Scams

Date published: November 2, 2016
When searching for funding for your business, you can face small business loan scams. We introduce you effective tips to avoid this unpleasant situation.
Scam Watch

Small business loan scams.

Scammers will go to great lengths to rip you off. It’s not enough to keep your guard up; you need to stay a step ahead. To help you do that, we’ve compiled a list of red flags to look out for when you are trying to find money for your small business.

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Be Skeptical

Success often pits risk against reward. But if the reward seems too good to be true, then it’s probably not worth the risk.

Scammers may try to overwhelm you with an amazing offer. You need to be skeptical, keep one foot in the real world, and snuff out the threat early on.

We’re not saying close the door on incredible opportunities. Just stay inquisitive, even when you’re excited.


Avoid Fees

You shouldn’t have to pay to apply for a loan. You may be dealing with a scammer when you’re charged a credit check fee, a registration fee, a down payment, or the like.

Never fall prey to the “advance fee scam.” This is where a fake lender will ask you for money up front. They ask for the first and last month of your loan fees before you’ve received the funding. You pay the money, and then you never see the loan.


Safeguard Your Personal Information

Per a New York Times article titled “Watch Out for Small Business Loan Scams,” criminals want more than your money – they are also after your personal information. After you apply through a scam site, they may sell or misuse your Social Security number, credit card number, and bank information. You need to be sure you’re dealing with a legitimate company before you give up sensitive information.


Don’t Trust Cold Calls

No legitimate loan company is going to cold call you and ask for your private personal information. The only way that happens is if there’s a scammer on the other end of the phone.

One way people get fooled here is they’re drawn in because the scammer knows some personal information already. There are lots of ways the crooks can get this data about you, so just because they know a little, don’t let that fool you into thinking they are a real company. A real provider won’t cold call you and ask for private information over the phone.


Don’t Be Intimidated

When flattery doesn’t work, scammers will sometimes try bullying. You’ll need to keep your composure and stay smart. Even when they push.

Some lenders will threaten you with a “forfeiture letter” that they say will make your company ineligible for SBA funding in the future. Private companies can’t actually do this.

Always remember that you have rights. Contact your state’s Attorney General’s office and report businesses that have abused you.


Look for a Real Address

It’s easy to check a company’s address. You just copy and paste it into Google. Ideally, the right business name will pop up in the search results. If not, maybe you will at least a sign for it on Google Street View (although this doesn’t always work if the business is inside a shared office building). If the address turns out to be a P.O. box, then play it safe and don’t work with the company. If you can’t validate the address at all, then cut ties with the company as soon as possible.


“Guaranteed” is a Dead Giveaway

No reputable loan company is going to use that word. We hesitate to include it in this article at all because we’ll probably get flagged for having it on our site.

A lender can’t know for sure that you’ll be accepted for a loan until after you apply. So, when they promise that you’ll get money before they have any of your information, something fishy is going on.


Stick to What You Asked For

A lender might try to sell you on other services they offer, such as debt forgiveness, credit building, and better access to SBA funding. It might not be a scam, but chances are they aren’t doing you any favors. And a lot of the time these kinds of resources are available for free elsewhere.


You Don’t Need Help Asking for Government Grants

We’ve told you before about how some companies can get free money from the government. The scammers would have you believe you need professional help to access these funds. It’s just not true. You can likely apply for these funds on your own, but if you do need help, there are free resources in your area to help. There’s just no reason to pay anyone to help you with this.


You Want a Loan, Not an Investor

If a would-be lender turns out to be an investor, don’t get started knowing the details. The investor may try to charge you fee to look at your company and see if you’re a good investment. This can be money lost if they end up not working with you. When you do pass their tests, they may ask for a piece of your company as part of the investment agreement.

A small business investor can be a lot of trouble, but you can times that by a million if they end up being a scammer.


Be Wary of a Check Bigger than you Agreed To

Here’s one of the oldest tricks in the book: A lender sends you a check for more than the loan amount you agreed to. When you contact them, they tell you it was a mistake and the easiest solution will be for you to deposit the check and then wire them the difference from your account.

After you wire them the money, your bank discovers that the original check was a fake. Your bank removes the money from your account and you lose however much you wired to the lender.

When you try to contact the lender, you find out that they don’t actually exist.

This is sometimes referred to as the “check overpayment scam,” and it is seen outside the small business industry as well.


You May Have Other Options

A good salesman usually won’t gush about a competitor. If you want to find the best price out there, you’re going to need to do your own research.

Never trust an aggressive lender who tries to convince you that you don’t have any other options. Don’t believe something like, “Your credit is so bad that you’ll only be able to work with us.”


What to Do if You’ve Already Been Scammed

If you fell for a scam already and are trying to get your money back, here’s what to do first: buy a box of tissues. There’s not much else you can do after you’ve been caught up in small business fraud.

In an interview for, the Inspector General of the U.S. Small Business Administration, Peggy Gustafson, said that she was not aware of any small businesses getting their money back from scam artists.

You should still report all scammers to the proper authorities, but don’t hold your breath on getting any of your money back. It just doesn’t happen. The best you can hope for is that your information will help them stop the bad guys before they fool another small business out of their hard-earned cash.

Your best way to beat the scammers is to stay a step ahead of them. We hope our tips can help you do just that.

Ethan James   Lead Writer
Ethan James is an experienced Financial Writer at Lendza with over a decade of experience.