Many entrepreneurs rely on loans to get their businesses started and grow, and lenders are helping support these businesses by streamlining the lending process for faster turnaround and less paperwork.
These changes have also opened up new ways for scammers to target small business owners who might be unfamiliar with the lending process.
Learn to identify the common tricks scammers use and keep your business — and your hard work — safe.
If you think you’ve been the victim of a business loan scam, stop all contact and report it to the authorities:
Business loan scams can happen in different ways: A scammer might pretend to represent a bona fide lender to gain your trust — and then take your money. Or, they’ll persuade you to give up your personal identifying information that they’ll use to open new accounts under your business’s name.
Loan phishing is another tactic where the scammer hooks their target with big promises they fail to deliver on or hides the real costs associated with the loan.
Some scammers provide fake agent ID numbers and go so far as to replicate company logos representing a legit company.
Learn more details on common tactics scammers use to take advantage of small business owners.
Numerous hints will indicate that a business loan scam is working against you: Maybe you’re pushed to pay upfront fees or share personal identifying information or account details.
Maybe the lender guarantees your approval, hides loan details until after you apply or promises unrealistically good rates and lengthy repayment terms. Maybe the cost of your loan is far above the average costs of interest for a business loan. And scammers can hit you with these tactics — and more — from almost any platform.
If you’ve experienced any of these scenarios, it’s usually a sign your “lender” wants to take your money rather than support your business.
Shady lenders typically target business owners with low credit scores who have already applied for a loan. They’ll offer a guaranteed loan or a list of lenders who work with bad-credit applicants – if you pay in advance.
Or they’ll use the excuse of upfront administration fees, credit check costs, processing costs or anything else. Once you pay the fee, the lender either disappears or stalls the process and you get nowhere. But in reality, there’s never a reason to pay a lender or broker before you borrow.
Lenders might have origination fees or costs, but the lender only charges these once your loan is funded — and these fees are either deducted from the funding amount you receive or incorporated into the loan’s cost. A lender should never ask for a down payment or other significant advance costs before approval. And a lender always pays a loan broker in commission after the deal is done.
Protect yourself by verifying the lender’s identity and the promises it’s made to you through the lending institution. Never accept promises of guaranteed approval: If you hear language like: “No history? No credit? No problem!” coupled with a demand for money up front, look elsewhere.
Business owners with less-than-stellar credit might opt to work with a credit counselor to improve their credit file. And some scammers pose as credit counselors and take a borrower’s money without providing any relief — putting them further in the hole.
Scammers who prey on low-credit business owners may claim a guaranteed improvement in their credit score or eliminate negative flags on their report — even if the information on the person’s file is up-to-date and accurate. These promises are usually a sign the lender is up to no good, especially in combination with these ploys:
If you’ve registered with a credit repair service, you have the legal right to cancel any credit repair service within three business days — for any reason and for free.
Scammers might attempt to cheat you out of your money over the phone. They work to get your information — either personal identifying information or bank account information — to steal your identity. Sometimes they come off as helpful and empathetic; other times, they are aggressive and threatening.
Either way, whether they promise you gifts or unrealistic rates or threaten you with legal action, you can protect yourself once you can identify a phone scam. Be on the alert if:
It’s difficult — if not impossible — to get your money back if you use any of these methods. No legitimate lender will ask you to use these payment methods for a loan.
Cold-calling is illegal, so you shouldn’t receive phone calls from companies you’ve never done business with before.
A company needs your permission to call you with a robocall if it’s selling you a product. The best way to protect yourself from phone scammers is to register with the National Do Not Call Registry.
Increasingly tech-savvy crooks do what they can to take advantage of anyone unaware of the risks. The internet allows them to strike at US business owners from outside the country to steal money and valuable personal information to sell or use to open credit accounts and wrack up serious debt in your name.
An online scam can look like any of these:
How to protect yourself from online scams:
The SBA isn’t immune to scammers using its name to take money from unwary business owners. The SBA warns small business owners to watch for the following warning signs when applying for a loan program:
Report abuse, fraud and mismanagement or waste of federal funds. Protect yourself and other business owners from scammers acting under SBA programs, operations or as SBA employees.
If something doesn’t match up or seem right, drop the lender. There are plenty of legit options — so don’t rely on any lender or company that gives you a bad feeling.
A little shy of 1 in 10 (8%) Americans say they’re self-employed, with about a third (30%) saying they’re considering a business loan — which equates to about 6 million potential victims of business loan scams if they’re not careful to search for a reputable vendor.
Finder data suggests that men aged 35-44 are most likely to be researching this topic.
| Response | Male (%) | Female (%) |
|---|---|---|
| 65+ | 5.17% | 3.82% |
| 55-64 | 8.37% | 4.77% |
| 45-54 | 11.57% | 6.59% |
| 35-44 | 14.34% | 9.43% |
| 25-34 | 12.81% | 9.46% |
| 18-24 | 7.90% | 5.79% |
Business owners must also be wary of post-loan scams. Be aware of these two scams — especially if your business struggles to handle its debts.
There are legit business debt relief options. Debt settlement and debt management companies charge a fee, but this should only be after they reach out to your creditors and negotiate a deal. Again: be cautious of any business that contacts you first or offers guaranteed approval.
Thoroughly investigate any debt relief company to confirm its legitimacy, and consider refinancing your business debt instead. It may not reduce what you owe, but it can make it easier for your business to afford monthly repayments.
While a legit lender will contact you if your business has fallen behind on payments, it won’t use threatening language or pressure you into sending funds. If you receive a call or email that states you must make immediate payments, may be arrested or have legal action taken against you, ignore it.
Reach out to your lender — it may be able to work out a repayment plan or offer some guidance to help you avoid falling for high-pressure debt collection tactics in the future.
Remember: Even if your debt is sold to a debt collection agency, it’s illegal for it to harass you. Keep tabs on your debt — even if you default — and report any malicious collection tactics to the Federal Trade Commission (FTC).
If your lender decides to pursue legal action against your business, you’ll receive official notice, not harassing phone calls. Add your phone to the Do Not Call Registry through the FTC for further safeguarding.
If you’ve been victimized by a scam, take these steps:
Contact your bank immediately if you send money or information to a scammer. It can cancel any pending transactions with the lender and close your account to protect it from being compromised.
Sadly, most scam victims won’t see their money again. It’s usually next to impossible to track down scammers, and in many cases they’re overseas and out of reach of American authorities.
If you’ve encountered a scam lender, or any other fake financial services providers, report them to the Federal Trade Commission and Better Business Bureau.
Scammers often strike the same place twice. To ensure you stay safe from any more traps or follow-up scams, be aware of these schemes:
Because it’s rare for businesses that have been scammed to see their money again, be proactive and protect yourself by following this guide and only dealing with reputable, verified and well-known lenders, big banks or other established institutions.
An FTC scam alerts feed will alert you of new scams and update you on warning signs to watch out for. And remember to sign up for the National Do Not Call Registry to prevent unsolicited phone calls from telemarketers.
While scammers can fake legitimacy, there will always be signs to indicate otherwise. The trick is to make sure that everything adds up. You should know the:
If the lender has these, look for anything that doesn’t match. Then follow these steps:
If something doesn’t match up or doesn’t seem right, drop the lender. There are plenty of legit options out there.
And trust your gut: Don’t rely on any lender or company that gives you a bad feeling.
The best way to prevent falling for a scam is to know what to look for before you apply. Keep your safety — and your business’s safety — at the forefront of every loan application to stay one step ahead of any potential scammers.
And you can fight back if you’ve become a victim, even if you can’t recoup your losses. Also, be aware of some common personal loan scams — falling victim to one could impact your business.
Know where to find legit lenders to avoid a potential business loan scam when looking for a loan.
How do I get my money back after I’ve been scammed?
If you’ve sent funds by wire transfer or paid any “fees” with a gift card, then you’re likely out of luck. Check with your bank or credit card company to see if there are any options available to you.
When do legit lenders ask for bank account information?
A lender will usually ask for some banking info after you’ve applied for the loan. It may request your business bank account number and your bank’s routing number to confirm you have the funds to repay your loan.
But legit lenders will never ask for a password or other login information. If your lender does, be careful: You’ve likely run into a scam.
When am I better off getting a loan from a bank?
It depends on your needs. Even small business loans from banks can be relatively difficult for newer businesses to qualify for, and you may have to meet rigorous criteria to be eligible. There are legit lenders that operate online, so working with a bank isn’t the only way to avoid a scam.
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I’m having an agreement with a funding company and I don’t know if they are legit or not. I might need help with that.
Hi Karim,
Thank you for getting in touch with finder.
I suggest that you personally seek help from some financial experts on this matter. Since you’re from Egypt, it would be a good idea to check some government agencies that can assist you on checking this funding company’s background or record.
I hope this helps.
Thank you and have a wonderful day!
Cheers,
Jeni
Hi how will you know if hoopla loan is registered with NCR
Hi Mpho,
Thanks for reaching out to finder.
Hoopla Loans is not a lender but an online loan matching broker so they will really not be registered with NCR. They help by connecting borrowers to lenders on their panel and as per Hoopla Loans, all the lenders in their panel are licensed by the NCR.
If you want to check if a lender is registered with NCR, you can go to their website and search their database using the name of the lender you want to verify.
Cheers,
Charisse