When your small business requires an influx of cash, it may be tempting to secure a loan as quickly as possible.  However, to ensure your small business doesn’t fall prey to a loan scam, it’s important to take the time to fully investigate each loan offer.

Many scammers, posing as lenders, are trying to take advantage of the COVID-19 pandemic and its effects on small businesses. Loan scams can cost small business owners thousands of dollars and also expose them to identity theft. In 2019 alone, the Federal Trade Commission received more than 3.2 million fraud reports. Imposter scams—when a thief pretends to be from a well-known business, like a lender or the government—topped the list by causing $667 million in losses in 2019.

How to recognize a loan scam

Often, if a loan seems too good to be true—it probably is. Here are some red flags to look for when communicating with a potential lender:

  • A name similar to a well-known bank or other financial institution

  • A lender who only uses a P.O. Box, not a physical address

  • A generic email address, like one through Gmail, Yahoo, or Hotmail

  • Non-traditional advertising, like direct messages on Facebook, ads on Craigslist, or yard signs on the side of the highway

  • A lender who isn’t registered with your state attorney general’s office, which lenders and loan brokers are required to be

  • A company that has many consumer complaints on the Better Business Bureau’s website (you should also check with the BBB’s Scam Tracker)

  • Seemingly-unrealistic promises

  • A lack of detailed loan cost information

  • Any offer of “guaranteed” money that occurs without checking your credit record

  • Getting approval for a loan that you didn’t ask for

  • Any requests for immediate payment or upfront fees to receive the loan

  • Any requests that you pay through a wire transfer, gift card, or prepaid debit card

  • Any requests to send payments directly to a person, instead of a company

  • Any overly-aggressive sales tactics

Many loan scammers frequently change their names, phone numbers, websites, and email addresses. If you can’t find any type of digital trail about the company, steer clear.

Examples of loan scams

Especially during the COVID-19 pandemic, loan scams are on the rise. If the Small Business Administration (SBA) offers you a business grant (which is not a service it provides) or the System for Award Management (SAM) requires a registration fee (it doesn’t), you’ve likely come in contact with a scammer.  

Check verified government resources for the best source of accurate information.

Tips for avoiding scams

Here are some ways to can help safeguard your company from falling victim to a scam:

  • Don’t provide private information—particularly Social Security numbers, credit card information, or banking information—in response to an unsolicited call, letter, or email.

  • Contact the Better Business Bureau for more information on a company before you sign anything.

  • Search “scam” or “scams” on the SBA’s website to review the scams that have already been reported to the SBA.

  • Contact your state Attorney General’s office to see if the company has been reported for fraud.

  • Do a reverse search of the phone number on the internet, which may reveal if others have reported that the number belongs to a scammer. If you don’t have caller ID, ask the caller to provide their number to you.

What to do if you are a victim of a scam loan

If you believe that you’re a victim of a loan scam:

  • Call your local police or sheriff’s department. Be prepared to share the lender’s contact information and any paperwork you have, including letters, contracts, and emails.

  • Report the incident to the Consumer Financial Protection Bureau (CFPB), which will review your complaint and add it to its public Complaint Database. The bureau may take legal action if enough people report the same kind of scam.

  • If you shared personal information with a scammer, you may need to call your credit card issuer or your bank.

  • Contact the three major credit bureaus—Equifax, TransUnion, and Experian—to put fraud alerts on your credit report.

  • If you’re a victim of online loan fraud, report it to the FBI’s Internet Crime Complaint Center.

  • If the scam was processed through the mail, file a complaint with the U.S. Postal Inspection Service.

  • Contact the Federal Trade Commission’s website or call 877-FTC-HELP.

  • Report the scam to the BBB’s Scam Tracker.

 


Thanks for reading our article posted on May 26, 2020. Please note that this content is intended for educational purposes only. As COVID-19 laws and funding change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. See more small business resources or check your current workers’ comp rate in 3 minutes.

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