10 Tips for Avoiding Business Loan Scams | Fora Financial Blog
Close
10 Tips for Avoiding Business Loan Scams
September 21, 2021
10 Tips for Avoiding Business Loan Scams

10 Tips for Avoiding Business Loan Scams

Business loan scams have been around for a long time and they’re not going away. Nearly two thirds of companies surveyed by the Better Business Bureau said they’d been targeted by a scammer in the past three years.

Because there are so many scammers online, financial education and awareness are needed to avoid them. Understanding how to spot business loan red flags and avoid scams is the best way to prevent loss. To that end, here are our top 10 tips for avoiding small business loan scams.

How to Avoid Business Loan Scams:

1. Be Wary of Scammers Pretending to Be a Trusted Source

Imitating a trusted authority figure, like a soldier or a police officer, is an age-old tactic of a scammer. Modern business loan scammers often pretend to be from the Social Security Administration or the IRS. Alternatively, they may even make up an official-sounding name or pretend to work for a company you know. Don’t be fooled by these tactics; and if you’re not sure, seek verification.

If that doesn’t help, do an online search with the details of the call or email you received. Chances are, it’s a known scam and that’ll be clear within the first few search results.

2. If You’re Unsure, Take Your Time

Scammers often try to pressure you into acting immediately. Their goal is to force you into a bad decision without giving you time to think. Instead, take your time and end your first conversation without making any firm commitments.

This way, you have time to do your research or solicit advice. Even if it’s not a scam, there’s no harm in taking a day or two, talking to a trusted colleague, and/or looking for a second opinion before making a decision that might cost you.

3. Don’t Share Personal or Financial Information

Real organizations won’t randomly ask you to provide personal information over the phone, email or text. If a company you think is real asks for your Social Security number, credit card, or bank account numbers, don’t do so digitally. Contact them using their website or find their publicly listed phone number. Email and text are not secure enough for you to exchange personal information.

4. If It Seems Too Good to Be True, It Probably is

A good rule of thumb to avoid business loan scams: if it seems too good to be true, it probably is. For example, if a lender is promising you free cash or an incredibly low interest rate, don’t rush into it. Do more research on the lender and look them up on the Better Business Bureau.

5. Research Prospective Lenders

Part of your due diligence on any prospective lenders should be a thorough online search. Start with a search engine and type in your lender’s name plus the word “scam”. If someone’s been scammed by the lender, this search should help you find it.

Also, look for the lender on sites such as NerdWallet that aggregate lender reviews and ratings. If you can’t find your prospective lender anywhere online, that’s a serious red flag.

6. Don’t Pay Money Upfront

Anytime a lender asks you to pay money before your application is approved, you can be sure it’s a scam. Although application fees are normal, you don’t have to pay them if you aren’t approved. Never pay money for the opportunity of applying for a loan.

7. Ask Your Advisors For Advice

If you’re uncertain about a loan and you think it may be a scam, reach out to your network.

If you don’t have a network of trusted advisors, contact an organization like SCORE or the Small Business Administration (SBA). Both organizations offer free business consulting services that teach business owners to avoid scams.

8. Don’t Click on Links From Unknown Sources

Even when an email or text message looks official, verify the sender’s identity.

For example, if someone using the SBA logo contacts you, check that the sender’s email ends in @sba.gov. Also, you should take additional security steps to limit the damage of phishing attacks, such as:

  • Regularly updating your software
  • Using multi-factor authentication
  • Investing in security software

9. Verify SBA Lenders

As mentioned above, business loan scammers often pose as official organizations or government agencies, like the SBA, to victimize unsuspecting entrepreneurs.

Fortunately if you’re seeking an SBA loan, you can verify whether a company is a verified SBA lender using this SBA Lender Search tool.

10. Look Out for Credit Repair Scams

Business loan scammers know how important your credit is for the success of your business. Due to this, they often promise huge improvements to your personal credit score that come with their loan program.

Don’t be fooled; even legitimate efforts to repair your credit score take time and continued effort. There’s no quick fix, and there’s certainly no loan that’s going to dramatically improve your credit score.

Conclusion: Be Aware of All Potential Financial Scams

The unfortunate reality is that small business loan scams aren’t the only ones you need to look out for. Scammers exist in many shapes and sizes and will use a variety of tactics to steal your information and money and ruin your business. For more information on a wider range of current and ongoing scams, read through the following resources:

New call-to-action

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Fora-Logo_TEAL-KNOCKOUT
Post by:
Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].