Spotting Lending Scams

Sadie Keljikian, Express Trade Capital

Recently, the alternative lending industry has expanded immensely, offering small business owners more funding options than have ever been available before. Unfortunately, this also means that scammers offering fake business loans target small business owners with increasing frequency. Without experience, avoiding these scams can be difficult but, fortunately, there are ways of identifying scams before you get taken in. Here are a few of them:

• Research your source carefully.

It’s impossible to know everything about a lender before you enter an agreement with them, but where you find the lender (or in some cases, where they find you) is important. Lenders that advertise or reach out to you on networking and social media sites like Craigslist or Reddit are generally not legitimate. Rather than risk losing money to a fake lender, you can use a verified database site specifically designed to provide credible lender options. Vetting is always important, particularly when your business’s finances are involved, so be sure to research your lender as best you can before you commit or put money down.

• If it sounds too good to be true, it probably is.

Beware of any lender that asks you for an ambiguous fee before approving you for financing if the terms seem too good to be true (I.E. 0% interest, “No credit? No problem!”, guaranteed approval). Many financing arrangements involve upfront fees, but always know who you’re dealing with before you pay up. Generally, a scammer’s only goal is to get you to pay the initial fee, which is why they claim that absolutely anyone will qualify.

With some exceptions, most legitimate lenders have credit requirements for their clients. Even those that offer financing to clients with lackluster or nonexistent credit history will require some other type of collateral and will often charge high interest rates to clients with credit issues. Ads and emails from strangers claiming that you are “guaranteed approval” on your future loan are blatant lies, as no lender can guarantee approval without the client’s financial details.

• Beware of unsolicited offers and “insider” deals.

As a general rule, financiers don’t reach out to businesses with whom they don’t have any relationship. On the rare occasion that they do, they’ll typically ask if you are interested in their particular services, rather than notifying you that you are “pre-approved” or have otherwise been chosen to receive a special deal.

By the same token, anyone offering “insider” information about business financing, particularly those who claim that they have the scoop on free grants from the federal government, should not be trusted. With extremely rare exception, there is no such thing as a free federal business grant. Besides which, the government isn’t in the habit of hiding grant opportunities from business owners; details on all federal grants are available online.

• High-pressure salespeople are a sign of trouble.

Any salesperson will have some degree of urgency when they speak to a prospect, but if you’re talking to a supposed lender who insists that you sign on immediately, be wary. This particular issue may not always signify a scam, but any reasonable financier will give you time to sleep on it and come to a decision without a metaphorical gun to your head.

• Don’t be afraid to ask questions before you disclose sensitive information.

This tip is valuable in any situation involving the transfer of sensitive banking or personal details. Never shy away from asking questions. The right financier will be happy to walk you through the process and explain any aspects that may be confusing.

Another way to avoid giving your sensitive information away to unsavory characters is to research your lending options and learn as much as you can about the mechanics of the type of financing you choose. Knowing as much as possible about how the process works in general will prepare you for the process as it should proceed and make you more likely to notice any red flags.

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At the end of the day, it can be tricky to avoid scams, but use your best judgment and acknowledge any red flags you encounter before you give away any money or sensitive information.

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