How To Avoid Fraudulent Loan Schemes Targeting Small Businesses?

The booming e-commerce industry is opening doors to new funding opportunities for small business owners. We are living in a digital age where access to business loans does not require us to meet some lenders one-on-one.  

Additionally, there is a lot of equipment finance and alternative funding. However, not all of them are genuine. We need to be more vigilant than ever to avoid fraudulent loan schemes. 

In this article, you will learn about fraudulent loan schemes and how they operate. Apart from that, you will also learn about common types of loan frauds and scamsters you can come across if you have a business.

Finally, this article guides you on how to deal with loan frauds and scams if you come across them. Hence, to learn more, read on to the end of the article. 

Fraudulent Loan Schemes: A Rising Issue

Amidst the global recession, fraudsters are taking every opportunity to conduct con tricks. Many SMEs need capital. As a result, they become major targets for loan scams.

Hence, to ensure spending at the right place, SMEs must keep an accountant on their payroll to monitor all transactions.  

Generally, SMEs have someone to watch over the finances, and they create different job roles for them. However, there can be mistakes with people.  As a result, money can slip through the net when it does not need to.  

However, if an SME maintains and creates a designation for a professional accountant, they can use different options to hire one. For example, you can get help from sites like cfostrategiesllc.com. Therefore, if they lose it to a fraudulent scam, it can be very damaging.  

Common Fraudulent Loan Schemes To Watch Out for 

Here is a highlight of pervasive shady deals that you need to watch out for if you run a business in the United States: 

1. The Loan Broker 

You can come across a loan broker who claims to help you select the best products to sell. Furthermore, they can even make arrangements for you to meet lenders.

Apart from that, they are also very quick to get the paperwork ready for a supposed smooth procedure. This is a sign of fraud. Even though there are genuine loan brokers out there, we should be careful with broker loans.  

There are several telltale signs of a devious loan broker. First, their proposed lenders are very quick to approve loans. You can deduce that there is a high probability they are not registered by the Federal Trade Commission and have no physical office.  

Moreover, the loan broker might claim to operate purely online and can put you under pressure to make decisions immediately. After that, they usually ask for prepaid credit cards and do not seem interested in the payment history of the borrower. Hence, make sure you do not fall into this trap. 

2. Advance Fee Loan 

In this loan scam, generally, an institution promises to give quick and low-interest business finance. However, there is a catch. They will do so only if you make an upfront payment. Basically, they regard the initial payment as an application fee.  

Imagine putting some down payment without knowing whether the loan will be approved or not. Primarily, they direct this trick toward small enterprises that have a problem maintaining enough cash flow. As a result, new entrepreneurs with poor credit scores are also a major target. 

3. Credit Repair

You might understand the importance of credit ratings, especially when you are looking to borrow cash or rent equipment. This is where credit repair scams lure businesses into the desire for a better credit score. They charge people to remove errors from their current credit reports. Yet, you can make these adjustments for free. 

4. Consultancy Fee 

Here, a person might reach you through your mail and claim to provide you with a quick business loan. However, immediately after you pay the consultant for the service, they disappear without a trace.  

Hence, you must understand that loan acquisition is not a casual deal. Rather, it is a complex procedure, so these shortcuts are only designed to steal from us. 

5. Funding Kit 

Like a consultancy fee scam, the funding kit promises to help with the whole process of borrowing cash. Here, the scammer offers a “Loan Kit” for acquiring a grant that seems too good to be true. Although it might sound legitimate at first, the victim is actually duped out of money. 

6. Ghost Investors 

At some point, all businesses require investors to boost their capital. However, there are cases when one can pose as an angel. Still, they hesitate to invest in your business.

Meanwhile, they might request sensitive information about your business (like bank account details, customer information, insider details, etc.) so they can make up their mind.  

Furthermore, they might even demand an administrative service fee in advance. However, once you start giving away sensitive details, in no time, they will fleece your bank accounts. 

How Can You Protect Your Business from Fraudulent Loan Schemes? 

Here are some of the ways through which you can protect yourself from various scams: 

Verify Lenders Before Giving Out Your Personal Data 

Many crooks masquerade as lenders because they know it is easier to obtain sensitive information from a borrower.

However, you must not leave a trace of your business details when filling out online loan application forms with unknown lenders. Always investigate the lender. This way, you can spot something bizarre and report it. 

Do Regular Credit Checks 

It is horrifying to find someone who has obtained a loan using our name. Hence, it is imperative to conduct credit checks every three months.

This will enable you to find out whether someone did any fraudulent transactions or not. As a result, it will help you find leaks in your business communication. 

Always Seek For Reliable Sources 

Unsolicited emails and links are a no-go zone. There are scammers who use web addresses almost similar to those of legitimate organizations and banks. They do so to steal confidential information. Hence, always stick to genuine websites and financial institutions while you are dealing with finances. 

Final Thoughts 

The aftermath of COVID-19 has left many businesses with cash flow problems. However, this should not lead us into desperation. With common sense and a little skepticism, we can avoid all forms of money swindling. However, even three years after the pandemic, the problem of scammers still persists. 

All you need to do is borrow finances from reputable lenders only. We should be on the lookout for fraudulent loan websites claiming to have affiliations with SBA. It is possible to remain afloat through economically hard times by learning how business financing works. 

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