Business loan scams have existed for a long time and offer a big threat to business owners across the country and the world. According to the Federal Trade Commission, almost two-thirds of businesses interviewed by the Better Business Bureau admitted that they had been victims of loan scammers.
Due to the increased number of online scams, there is a need for financial education and campaigns to avoid or prevent such scams. One of the best ways to prevent losses is by understanding how to detect loan red flags.
How Widespread Are Financial Scams?
Approximately one in three adult individuals are targeted by financial scammers. A good percentage of the American population is gullible and often falls into the traps of financial scammers. According to a report published by the FTC, millennials are the most vulnerable to online fraud like government imposter scams, shopping fraud, fake checks, work-at-home scams among others.
The COVID-19 pandemic made even things worse. There was a significant increase in the number of online scams compared to any other period in history. This is probably because a lot of young people were idle at home and took advantage of the ignorant online community to scam them.
Tips to Avoid Scams in Business Loans
1. Be aware of scammers posing as genuine loan providers
Most scammers tend to imitate trusted authority figures in order to gain the trust of their victims. That was however an old tactic used by scammers. Today, scammers have changed their tactics and pose as IRS or Social Security Administration (SSA) officials. They may sometimes mention a company that’s too familiar to you so that you can believe whatever they are saying. Don’t fall into such tactics but instead seek to verify every piece of information you are receiving.
2. If you are doubtful, don’t rush
In most cases, a scammer will try and pile pressure on you to act fast. Their objective is to make you make a quick decision without thinking. It doesn’t matter how sweet the deal sounds, take your time and consult before making any decision. This will help you to gather enough information and determine if the information you are being given is accurate or not.
3. Avoid sharing personal or financial information
Reputable companies won’t ask for your personal information anyhow via phone, text message, or email. In case a company that you believe is genuine requests for personal information such as SSN or bank account number, don’t send the documents digitally. Try to contact them in the best way you know and find out if indeed they are the ones seeking your personal information.
4. Research potential lenders
Carry out due diligence on prospective lenders in your area and the internet is the best place to start with. You can type the name of the lender together with the word “scam” and see what comes out.
Small business loans for bad credit are extremely important for business owners. Nonetheless, you should be wary of scammers who pose as legit lenders. According to Lantern by SoFi, “It can be difficult to find no credit check financing options, so it’s generally worth building your business credit score as early as possible. When working on building your credit score, it may also be helpful to establish relationships with vendors that report to the business credit bureaus and pay your bills on time. Taking these steps may contribute to a stronger credit profile that could help open the door to more favorable financing opportunities in the future.”