Small Business Loan Scams: How to Avoid Becoming a Victim

October 13th · 8 min read

Guardio Research Team
Guardio Research Team

If you're a small business owner, you may consider taking out a loan to help finance your company. Some people see business loans as dangerous, but if you want a strong cash flow and success for your company, they can be pretty helpful. However, before doing so, it's essential to be aware of the many small business loan scams.

The best defence against online scammers is educating yourself on the different risks. Cybersecurity is important to protect your business, and Guardio will help reduce the chances of scammers tricking you. In this blog post, we'll discuss how to avoid becoming a victim of these scams and get the money you need for your business without putting yourself at risk.

What is a Loan Scam?

In order to stay afloat while incurring new expenses, businesses rely on loans to provide additional funding. With more companies offering alternative lending options, especially online, it's now simpler than ever to get the funds you need for your business. However, not all of these businesses are legitimate; some are out to scam you.

Business loan scammers are increasingly common and often pose as representatives from respected brands or banks. They’ll try to contact potential victims online, most time via email, ads, or social media. With Guardio’s browser extension, you can protect your business from phishing‌ ‌and‌ ‌other‌ ‌scam‌ ‌sites‌ that try to trick‌ ‌you‌ into giving ‌away‌ ‌personal‌ ‌information‌ or money. Guardio‌ ‌reveals ‌these fake malicious sites and blocks them immediately.

In addition to these online frauds, some criminals will actually cold call or contact you through text messages. They take advantage of your need for quick funding and alternative financing options to steal your money and personal information.

By learning how to protect yourself against business loan scams, you'll greatly lower your chances of being taken advantage of by a fraudulent lender.

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Business Loan Scam: The Red Flags

Always be cautious of business loans that seem too good to be real. If you come across any of these red flags, it's better to look for another option instead.

  • Fees are charged before you are approved
  • Approval is guaranteed, regardless of your credit history
  • Rushed loan process
  • There will be no live support or contact
  • There is no up-front information available regarding terms and rates

Most Common Business Loan Scams

Advance Fee Loan Scams

This fraud is known for offering low-interest loans with no credit check, only if you pay a processing or one-time fee first.

Your credit score is important for getting a loan. The lower your credit, the higher the interest you will have to pay. So if someone tells you they will help you get a loan, even if your credit score is low, this might be a scam.

Legitimate institutions charge fees, but the difference between scammers is that they will not ask for an upfront payment without giving you more information.

Peer Lending Scams

P2P lending has become a popular way for people to borrow money without going through a financial institution. This lending connects borrowers and lenders directly, resulting in lower interest rates and fees.

P2P lending scams usually occur when a platform blocks investors from withdrawing their cash and shuts down after a period of unusual activity. Scammers often ask for money upfront and personal information under the guise of needing it for a background check before finalising a peer loan.

How to identify a fake P2P platform: The platform asks for a very high starting investment; the promised average monthly return is unrealistic; the offices are in a different country than the bank accounts; their information changes; the deposit and identity verification processes are unclear; the platform is not approved by national regulation; the site provides incentives for new investors; there is no explanation when the funding volume falls dramatically.

Funding Kit Scams

In this type of scam, you will get an offer to get money or special government grants. The scammer will ask for payment to give you information that is available online. They target people who think getting an affordable business loan is too complicated and need certain information.

Keep in mind that there are no tips or tricks to getting grants. Only a small number of businesses can meet their requirements. Also, only a federal, state, or local government agency can issue a grant, and they will never call you to offer it.

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Credit Repair Scams

If you get an offer to raise your credit score by 100 points or erase poor credit history in a matter of days, watch out! Neither of these things is possible. Improving a credit score takes at least a few weeks or months. The highest prerequisites for obtaining a business loan are excellent credit and a stable financial position.

No one can remove negative information from your credit report, regardless of the three major credit bureaus. There are a lot of ways to repair the credit score that you can do by yourself, and information you can get for free with legitimate credit repair companies.

Fake Loan Broker Scams

Reliable loan brokers will help you locate the ideal loans that suit your business and put together the required paperwork. Instead of spending hours online researching and contacting each lender to ask if they could be right for you, a broker does it all! Remember that a legitimate loan broker will never ask you for an upfront fee for their services.

A loan broker gets compensated by a lender on a commission basis, so the business owner pays nothing. Any company that demands an up-front fee is unquestionably a fraud.

Cold Calling/Messaging

If you receive a phone call or email from a company you don't recall, it's likely coming from a less reliable source. Cold calling and messaging are not typical for trustworthy lenders in the business financing industry. They usually only get in touch with people who've previously shown interest.

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How To Get Loans From Reliable Sources

Use Cybersecurity to Keep Your Device Safe

Having cybersecurity protection for your business is one of the most important things you can do to defend yourself from scams. With Guardio extension, you can avoid being a victim of phishing and other scam sites that attempt to trick you into giving away personal information. The security team at Guardio develops its in-house features to enhance phishing and other harmful website detection.

Watch Out for Fraudsters Who Impersonate Credible Sources

Some scammers pretend to be from the Social Security Administration or the IRS. They might also say they work for a company you know. If you are not sure, ask someone you trust. Then do an online search to see if it is a scam.

Take Your Time

Never let anyone pressure you into deciding on the spot. This is a classic scammer tactic to make you feel rushed and force you to act without thinking. Take your time and end the conversation without agreeing to anything. That way, you can do your research or get advice from someone else. Even if it's not a scam, it's always advisable to take at least a day or two before making any financial decisions. Talk to a trusted colleague or financial advisor for guidance.

Protect Your Personal or Financial Information

Organizations will not just ask you for personal information over the phone, email, or text. If a business you believe is genuine requests your Social Security number, credit card, or bank account numbers via email or text, do not respond. Contact them through their website or look them up online to get their contact information. Email and SMS are not secure enough to transmit sensitive data.

Don’t Click on Links from Unknown Sources

Double-check the sender's identity when an email or text message appears to be legitimate. Phishing and scam websites are two of the most prevalent ways to get ripped off. When you click on unfamiliar email links, social media frauds, popups, and advertisements, these are among the most frequent sites encountered. You may trust Guardio extension to reveal the reality. Guardio protects you from phishing and visiting harmful websites.

Install the Guardio extension to browse securely if you want to avoid getting your account hacked. Guardio scans your device for harmful extensions, removes them, and warns you before installing them in the first place. For their users, Guardio blocks dangerous and detrimental downloads.

Don't Pay Money Up-Front

Any reliable business loan lender won't request that you pay funds before you're approved for the loan. If a lender asks for payment while you complete the application, it's best to keep looking.

Research Your Options

When you're choosing a lender, don't hurry through the process. You probably have a lot more alternatives than you realize, and the appropriate lender may assist you in saving thousands of dollars in the long term.

Always Look For Advice

Financial education is key to making significant decisions. Speaking with an expert is always a good idea, especially before making big decisions like taking out a business loan. A trustworthy loan provider will always give you reliable information and help guide you to making the best choice.

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Don't Believe in Exaggerated Promises

Avoiding business loan scams is simple: if something appears too good to be true, it usually is. If a lender offers you free money or an incredibly low-interest rate, don't accept the offer immediately. Look up the loan officer and check them out on a reliable source.

Conclusion When you need a business loan, be aware of the dangers of loan scams. Keep in mind the tips listed above, and you'll be able to avoid becoming a victim. Be skeptical. Don't let scammers trick you with too exceptional promises. Do your research and take your time before making any decisions, and you'll be on your way to getting the best loan for your business.

Remember that another successful way to prevent scams is by protecting your business devices and information with Guardio extension. Keep in mind that most of these scams are found online. Guardio blocks dangerous websites, downloads, and harmful extensions. It also warns you before installing them in the first place. Installing the Guardio extension guarantees secure browsing, and scammers will be less likely to be successful in getting in touch with you.

Sign up for a 14 days free trial

Guardio is a Chrome extension that monitors suspicious activity and blocks hackers from stealing your data.

Verified by Google Chrome.

Instant Results.

4.6/5 based on 1,000+ Trustpilot reviews

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