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Fraudulent Loan Schemes Targeting Small Businesses and How to Avoid Them

Fraudulent Loan Schemes Targeting Small Businesses and How to Avoid Them

Fraudulent Loan Schemes

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 doesn’t require us to meet some lenders one-on-one. A lot of equipment finance and alternative funding have come up but not all of them are genuine. We need to be more vigilant than ever to avoid falling for criminal loan scams.

Amidst the global recession, fraudsters are taking every opportunity to conduct con tricks. Many SMEs need capital thus becoming major targets for loan scams. To ensure money is being spent where necessary, SMEs should have an accountant on their payroll to monitor all transactions. Many SMEs have someone watch over the finances as well as another job roll too but that’s where mistakes can happen, and money can slip through the net when it doesn’t need to. If an SME doesn’t have a designated, professional accountant, sites like make it easy to hire one. After all, SMEs need the money they earn as they need to establish themselves, so losing it to a fraudulent scam can be very damaging. Here is a highlight of pervasive shady deals we should watch out for.

1. The Loan Broker:

The Loan Broker

A loan broker claims to help us in selecting the best products to sell. They even make arrangements so we can meet lenders. And are very quick to get the paperwork ready for a supposed smooth procedure. 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. There is a high probability they are not registered by the Federal Trade Commission and have no physical office. They claim to operate purely online and can put us under pressure to make decisions immediately. Then they usually ask for prepaid credit cards and do not seem interested in the payment history of the borrower.

2. Advance Fee Loan:

Advance Fee Loan

In this loan scam, an institutional promise to give quick and low-interest business finance if we make an upfront payment. They regard the initial payment as an application fee. Imagine putting some down payment without knowing whether the loan will be approved or not? This trick is directed to small enterprises that have a problem maintaining enough cash flow. New entrepreneurs with poor credit scores are also a major target.

3. Credit Repair:

Credit Repair

We all know how important our credit ratings are when we need to borrow some cash or rent equipment. Credit repair scams lure us into the desire for a better credit score. They charge people to remove errors from their current credit reports. Yet, these are adjustments we can do for free.

4. Consultancy Fee:

Consultancy Fee

So, this person reaches me via email claiming they can help me get a quick business loan. Immediately after paying the consultant for the service, they disappear without a trace. We need to understand that loan acquisition is not a casual deal. It is rather a complex procedure, so these shortcuts are only designed to steal from us.

5. Funding Kit:

Funding Kit

Like a consultancy fee scam, the funding kit promises to help with the whole process of borrowing cash. The scammer offers a ‘kit’ for acquiring a grant that seems too good to be true. It sounds legitimate at first until the victim is duped out of money.

6. Ghost Investors:

Ghost Investors

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Sometimes we need an investor to boost capital. Someone can pose as an angel, but they first hesitate to invest in our business. Meanwhile, they request sensitive information about our business like the bank details so they can make up their mind. They could even demand an administrative service fee in advance. After taking us for a ride, in no time they fleece our bank accounts.

How Can We Protect Ourselves From These Scams?

Verifying Lenders Before Giving out Personal Data:

Many crooks masquerade as lenders because they know it is easier to obtain sensitive information from a borrower. We must not leave a trace of our details when filling online loan application forms with unknown lenders. Investigating the lender can help us spot something bizarre and report it.

Regular Credit Checks:

It is horrifying to find someone who has obtained a loan using our name. That is why we must conduct credit checks every three months.

Seeking Reliable Sources:

Unsolicited emails and links are a no-go zone. Scammers are now using web addresses almost similar to those of legit organizations and banks. They do so to steal confidential information.

The aftermath of Covid-19 has left us with cash flow problems, but this should not lead us into desperation. With common sense and a little skepticism, we can avoid all forms of money swindling. Let us normalize borrowing 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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