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The rapid growth of the online alternative lending industry has made it easier than ever to get approved for a business loan. At the same time, this has also led to an increase in loan scams that lead to personal and business information theft, large amounts of debt, or bankruptcy.
Most scammers will attempt to contact you through the internet by search engine ads, websites, or emails. However, loan scammers have also been successful through traditional channels, like direct mail, text, or phone fraud.
Your best defense is to stay cautious and protective of your info.
Another way to avoid falling victim to a scam is to be aware of what’s out there. Here are some common business loan scams that you need to watch out for to avoid financial hardship.
5 Common Small, Medium, and Large Business Loan Scams
Instead of comparing loans from an untrusted source, it’s better to stick to banks or approved lenders, like the ones featured on iSelect, so you can get legitimate business loans in Australia.
1. Credit Repair Scams
The old adage “if it sounds too good to be true, it probably is” applies to credit repair scams. Most of these scammers will contact you and make outlandish claims, like how you can increase your credit score by 100+ points in a week, which is impossible.
Although these credit repair loans often come from legitimate companies, they come with high fees and never give you what’s promised. Improving your credit can take months, even years.
2. Funding Kit Scams
Certain online loan providers will lead you to believe that obtaining a business is complicated, and they’ll need you to pay them to walk you through the process. However, all this information, including “insider info,” is available for free from legitimate lenders or online, so pass these up.
Funding kit scammers may also offer a “free government grant” that can only be cashed in if you provide your credit card information. The government will never contact you to offer you a grant.
3. Peer Lending Scams
While there are legitimate peer lending companies (Lending Club), scammers may try to offer you a peer lending loan from a social media platform, like Facebook or Craigslist. Scammers will also always ask for an upfront payment and/or a background check to steal your information.
Only rely on reputable peer lending platforms and never use a money wiring service for a business loan, and they offer much thinner fraud protection than banks or even PayPal.
4. Advance Fee Scams
An advance-fee scam is a multi-step process that begins with the scammer asking for an upfront payment. This payment may be disguised as a “processing fee,” which they’ll say is needed to approve your loan. They may also say that you’ll receive a low-interest rate regardless of credit.
All legitimate lenders will have credit minimums and restrictions on bankruptcies. While some lenders will charge a fee (OnDeck), this is typically only for borrowers with bad credit.
5. Loan Broker Scams
A loan broker’s role is to help borrowers find the right financial product for their needs, but they’ll never ask you for an upfront payment for their services. Ethical brokers work on a commission-based model and will only ask for this payment after paying off the total loan.
Most loan brokers will even offer you free advice on what loans work best for your business, so any broker that asks for money at any point (except after the loan is closed) is scamming you.
Note For Editor: OnDeck and Lending Club are mostly for American loans, so they won’t be a conflict of interest/competitor.
