Finding Fraudsters:
5 Ways to Spot A Business Loan Scam
Whether you’re taking out a small business loan or looking for asset finance, the sad truth is that scams abound. Worst of all they can be nigh on impossible to distinguish from genuine offers. If you’re looking at financing options but are worried about fraudsters, keep an eye out for the following five red flags:
Red Flag 1. The Offer Comes to You
In the wake of the pandemic, many genuine grants and loan schemes were launched to help small businesses survive. However, this has also inspired a wave of fraudsters determined to take advantage of people in desperate need of funds.
If you receive a call, email, or any other form of communication claiming to come from a funding body that can offer you a grant or loan, do not leap at the offer. Most importantly, do not provide any personal details. Scammers will often take the information you provide and apply for a loan in your name.
Red Flag 2. They Ask for A Finder’s Fee or Consultancy Fee
If someone tells you they can find you a loan faster or with better terms if you pay them a fee, this is a sign that you should walk away. Even if they’re not asking for a finder’s fee, you may find odd charges buried in the paperwork. For this reason, it’s essential that you don’t rush into signing anything. Read through every bit of paperwork and ensure that you understand what every fee is for.
Red Flag 3. You’ve Never Heard of Them Before
This isn’t necessarily a deal-breaker, but if a lender seems to have popped up out of nowhere, it’s definitely a good reason to pause and investigate before committing to a loan. A new lender, or one you’re simply unfamiliar with, may work out well for you. However, it’s often better to go through your current bank as the existing relationship can often make the lending process easier.
Red Flag 4. They’re Offering Fast Finance
If a company is coming at you with claims of “same-day approval” or the like, this is a sign that you need to proceed with caution. Even if your financial situation is dire, it’s important to remember that rushing into a fast loan could leave you in a far worse position than you’re in now. If you really can’t wait for the money, a better option is to approach your bank for a bridging loan or a reputable non-profit lender for a low-interest loan.
Red Flag 5. They Claim to Be A Wealthy Angel Investor
Though angel investors do exist, you need to be wary if one approaches you out of the blue. Fraudsters will often pose as angel investors, claiming to have an interest in your business and some spare funds they wish to invest. If they’re coming in hot with flattery about your products or business model, it’s important that you don’t let the praise lure you into making rash decisions.
You can keep discussing the potential of investment with them, but if they start asking you to pay for background checks, legal fees, or other aspects of their “due diligence,” then it’s a good sign you should walk away. After all, if they’re so wealthy and so convinced your business is a winner, couldn’t they easily pay those bills themselves?
It’s important to keep in mind that these red flags don’t necessarily mean that a business loan is fraudulent. Rather, they are indications that you need to do more research into the company and its offer before giving away any personal information. If in doubt, consult a reputable financial professional before making any commitments.
