Did you know that in the last 3 years marketplace scams contribute to almost $50 billion of monetary loss nationwide? Furthermore, 67% of small businesses reported that there is a greater risk of getting into loan scams now than before.
As a business owner, the last thing you want is to fall into losses caused by scammers, but how do you identify scams anyway?
This article will indicate to you what scams to avoid and also point out some of the apparent signs that you are getting into a scam so read on!
Business Loan Scams to Avoid
Loan scams are everywhere these days, and with digitalization and rise of the number of small businesses, you can easily find yourself in a scam. Spotting a scam is not very had though here are some of the most notorious yet avoidable scams
1. Advance Money Scam
Now always remember that the very essence off getting a loan is because you need the money in the first place. Be very worry id the lender is persuading you to give an advance fee in whatever form they may call it. Mostly, they use terms such as:
- Nonrefundable Fees
- Registration Fees
- Processing Fees
These firms lure you by purporting to give you low-interest loans with zero consideration of your credit score.
Please note that it is very essential that a business is able to pay the loan before it is advanced. Therefore, giving loans without caring about repayment history is an apparent pointer that it could be a scam.
Finally, not all lenders who ask for money upfront are scammers.
Banks and other genuine lenders ask for money for processing, registration, and the like. However, it is unlikely that this will be the only qualification for you to get a business loan and most cases this is the differentiating factor.
2. Funding Kit Scams
Ever received an email that you have won funding and that your business has been selected randomly for funding that you did not apply for? If so, you should smell a rat in the deal from the onset.
Most of these claim government grants or big organization grants that lure businesses owners. In most cases, they argue that the loans are interest-free. What scammers do in this one is that they offer to give you insider information and guarantee that you will get the loan.
Always remember that all the information you need about loans and government loans is available online and on the.
Additionally, the US government does not call people for grants unless very specified agricultural, medical or their kinds of research that your business may qualify for.
3. Peer-to-Peer Lending Scams
Peer-to-peer lending platforms are mostly online based lending platforms that offer loans from investor funded accounts.
There are both genuine and phony websites in this category. As a business owner, do not fall prey of the scam, especially if they ask for upfront payment.
The bigger risk with these ones is usually identity theft. The fact that they happen purely online means they require some sort of recognition such as name and banking details.
Always be careful not to release your personal information to unverified lenders or internet platforms. You risk losing your business and finances.
4. Angel Investment Scam
How wonderful that someone singled out your business and wants to fund it? Well, hold on first! It could be a scam. While it is possible through the verified platform to get an equal equity angel investor for your business, it is unlikely that the relationship will be established from the investor.
Getting someone to invest in a business, however small, without much stake, is actually hard work. You will need loads of connections from people before securing one.
Therefore, be wary of a phone call asking for personal information to connect you to a ghost investor or asking you to send advance transactional fees.
5. Credit Repair Bureaus
These are firms which purport to help you wipe your credit score and make you or your business creditworthy. While these are legitimate services which happen in the market, out here in the real sense, you can handle the claims yourself.
The scammers use these services to ask for service fees for things you can do for free either on the internet or at a government agency.
There are policies that allow you to launch claims if your credit scores are irregular or falsely represented you necessarily do not need a firm to handle that for you.
If you are busy or you just want to be sure though, find a credible loan repair firm to handle the business for you. Do not be swindled by scammers.
6. Loan Brokerage Scam
Loan brokerage is a lawful business. However, it becomes a scam when the broker asks for upfront payment for the service.
Loan brokers help connect business with reputable lending organizations. The most acceptable mode of operation is commission bases, not an upfront payment.
Only after the loan is approved can a broker ask for their share. Be worried, therefore, when thy act phony and want money upfront.
7. Debt Reduction Scam
This happens after you have received your loan and might be falling behind on repayment. In most cases, you will be contacted by people offering to help you repay the loan faster and easier with no additional payments.
This should be an outright scam as unless the lender is forgiving your loan the solution to you defaulting is not them helping you to pay.
Debt consolation and refinancing are some of the possible solutions for this problem. If you are falling behind on a loan the best option is to ask the lender to give you more time or reduce the repayment timelines.
8. Debt Collection Scam
When you default a loan, it is likely that a lender will outsource services of a collector. What is unlikely is the rudeness and harsh tone plus threats from the collection agencies.
The main difference between legitimate and scam debt collectors is the tone and threats. Usually, scammers will give you ultimatums and threaten to use the police force.
Genuine collectors are often composed will introduce their agency and the reasons they are contacting you. Do not fall prey!
9. Asset Loan Scams
These are lenders who ask you to take a loan against your business assets. They, apparently, conduct background checks on your business and offer unwarranted advice on how they can offer you a loan with assets as the collateral.
Beware of these as they may have hidden swindling agenda to rip your business assets off.
How to Prevent Loan Scams
Having said this, is there a way to avoid being scammed? The answer is yes! There are signs which indicate the deal is not genuine or the parties advancing it are not genuine. Here are some of the pointers.
Getting unsolicited contact from a loan firm should be an apparent red flag for a scam. While firms can send salespeople to do the advertising, it is rare that mainstream loan firms will do that. Always be careful.
Genuine companies have a website and official social media pages. Be wary of loans being advertised on personal pages and contact unless one is a shylock.
Always look for the official contact to ascertain the credibility of advertised loans before getting one.
It is very unlikely that genuine loan agencies will ask you to pay before receiving the loan. If the agency you are working with asks you to pay any among of money before getting your loan, trend carefully to avoid being scammed
Lack of a Physical Address
Always trust companies with physical addresses. While it is possible to run a business online and be genuine about it, a physical office creates credibility for its operations.
Most people get swindled by briefcase companies that do not have physical addresses. In case of a complaint or issue about the loan, you should have a physical place to get customer service.
Genuine loan firm uses a customized email addressed and not the generic Gmail, Hotmail or Yahoo. This is not to say their genuine is solely dependent on the email address.
It just means you should be alarmed if you are contacted by the generic ones. Because chances are higher that they might not be genuine
There is no such thing as guaranteed approval when it comes to loans. Proper financial analysis and credit score research are done before advancing someone a loan.
Therefore, any company which guarantees you a loan upfront is shaky. This is because it is not possible to establish the creditworthiness of an entity before these kinds of analysis. Only swindling company will forego the analysis in an aim to scam people.
Too Good Terms
While there were no standardized repayment rates or loan terms, you should be able to know what the market rate and terms for different aspects of a loan.
Do not fall prey to companies that lure people with unrealistic loan repayment rates or repayment periods. Everyone is out to make money, and if the deal is too good, think twice!
Safeguard Your Business from Loan Scams
Say no to business loan scams and secure your business finances today. Always work with genuine lending firms for your business financing needs.
Do you need a loan to grow your firm? Check out our flexible loans for your small business today and apply today!