How to Avoid Small Business Loan & Merchant Cash Advance Scams
Rule #1: STOP OBSESSIVELY LOAN SHOPPING, COLLECTING FAKE LOAN QUOTES, AND LISTENING TO LOAN BROKERS & LENDERS THAT MAKE NO LOGICAL SENSE!
Sounds so simple, doesn't it? Small business loan scams are happening more and more. Seriously, did you really think buying a merchant cash advance from that fast taking overly aggressive telemarketer was a smart idea? Small business finance is broken, plagued with predatory lenders and unethical loan brokers. In fact, the business model is comparable to the old mortgage industry, and you know what happened there...
With no regulation whatsoever, most funding companies are nothing more than call centers, ran by very young salespeople with zero knowledge, background, or experience in business, and/or finance. In fact, most loan brokers and online lenders simply auction off your application to the highest bidder, all while destroying your credit. Small business owners are being misled at every turn, collecting made up loan quotes, comparing lending rates & terms that don't exist in reality, clicking on banner ads for loan products they'll never qualify for, committing to funding offers that change at the last minute, and being duped into signing bait & switch funding contracts. As a funding company, we have never seen so many small business owners getting burned, in all the years we've been funding companies. And guess what, most of these small business owners who are getting burned, are going out looking for it. At the end of the day, the more people shop for business loans, the more people will get burned.
- Sign this funding contract, and we'll lower the rate in 30 days. LIE!
- Sign this funding contract and we'll turn it into a term loan at a low interest rate in a month. LIE!
- Sign this funding contract and it will convert into an SBA loan. LIE!
- Sign this funding contract and we'll give you double the money in a month. LIE!
Do you know, most business loan quotes that people are spending countless hours shopping for, are literally made up? 100% fairy dust. POOF! Business owners are wasting their time shopping for fake loan quotes, signing bait & switch funding contracts and right before funding, the lender says, "oh by the way."
Common sense would tell a person (with common sense) NOT TO SWIM IN THE WATER. Yet, you'd be amazed how many people would see this sign and still jump in. Shopping online business loans is the equivalent of jumping in shark infested waters. So why take the chance?
All day, every day, business owners come to us asking for capital and advice, yet refuse to listen to a word we say. Many of them have already shopped business loan websites, lenders, and brokers, wanting us to beat other offers they've collected. More often than not, they are waiving around a fake offer, from a fake funding company. They just don't get it. But they simply don't listen to a word we say, until they come back around a month later begging for help all over again. It's like a revolving door, and a viscous circle that is getting worse by the day.
Don’t fall victim to a business loan scam. Know the warning signs and sneaky tactics to watch out for.
Here's the problem.... Do you know that there are NO requirements needed to "sell" small business loans, and other small business loan products? Think about that for a second.... NO barrier to entry in small business finance, whatsoever. No education. No experience. No certification. No schooling. No classes. No tests. No courses. No oversight. No nothing!
Would you have your estate planned by someone with zero background in estate planning? Hire an attorney who never passed the bar? Have heart surgery by someone who never passed high school? Hire a stranger who cold-called you off Craigslist to watch your newborn?
NO WAY! RIGHT?
So why on earth would anyone put the future of their business and livelihood in the hands of a loan broker, or lender, with no knowledge, background, experience, in business, and finance?
Business loans are essential for many businesses, but business lending is also a hotbed for scams. The problem is the small business loan industry is completely unregulated. These scammers can say whatever they want, without any oversight. They are getting away with it, and businesses are imploding. It's paradise for shady characters, and there are a TON of them out there. Scammers work from both inside and outside of the US to separate business owners from their money by taking advantage of people who don’t know how the process works or what to expect.
Fortunately, you can stay safe by learning about what to look out for and some of the tricks often used by scammers.
Eight signs you’re being scammed:
There are a few red flags to look out for to tell if you’re being scammed. If you encounter even one of these, it usually means your so-called lender wants to take your money, not give you some.
- Money upfront. There is never any reason to pay a loan broker upfront. It doesn’t matter what reason they give, be it administration fees, credit check costs, processing costs or anything else. A loan broker should only ever get paid by the lender, in commission, after the deal is done. Some lenders might have initiation fees or costs, but these are rarely a significant figure and are only charged once your loan is funded. They should never ask for a down payment or other significant upfront costs before approval. If any loan officer or lender wants money upfront, be cautious.
- Credit repair. A business credit repair service should also be approached with caution. This is particularly true if you are approached by them, they offer the service unprompted or they tell you it’s necessary to repair your credit before getting a business loan. Startups and many other small businesses aren’t expected to have a perfect credit score, and lenders will generally place more weight on your business revenue and other application details rather than your score.
- No contact information. Avoid lenders who don’t have a physical address or easily-found contact information.
- Really, really good rates and terms. It’s sad to say, but if a deal looks too good to be true, then it probably is. Lenders are competing with each other and are constantly trying to offer better rates and loan conditions to attract more business, but they have limits as to what they can offer without losing money. If there’s one lender who seems to be offering a deal that exceeds other details by a long way, you may have cause to be suspicious.
- They “guarantee” acceptance, or anything else. No lender can guarantee that you will be approved for a loan. When a business offers customers a guarantee, that’s a binding promise they must deliver on. Without submitting your business application, you shouldn’t trust any guaranteed loan. If their marketing says guaranteed business loans, RUN!
- Generic email addresses. If a business lender is emailing you from a Gmail, Hotmail, Yahoo or other generic email account, then something is off and you should tread carefully. Lenders should be conducting all business with an official business email address.
- Unsolicited services and contact. If a “lender” offers you a loan unsolicited, it may be a sign of a scam. Lenders don’t offer loans with a cold call. They might send promotional letters in the mail or display ads on your browser, but even those are based on some background information on you. Similarly, you should also be aware of services you don’t want and didn’t ask for, like business plan writing or credit repair. Although these are legitimate services in their own right, they are generally not offered without prompting and you should consider whether you actually need them.
- The wrong type of loan. If you have a pretty good idea of what type of business loan you need but the lender wants to push you towards another option, you may want to be cautious. You might be being steered towards a product with higher rates or worse terms.
DON'T TAKE THE BAIT!
Unfortunately, the growth of online lending has resulted in the introduction of sub-optimal lenders that engage in less than ethical practices. Unfortunately, some lenders push small business owners to take on more credit than needed, or initially promise unsubstantiated terms and rates in a bait-and-switch scenario. The reality is, with zero regulation in small business finance and the merchant cash advance industry, coupled with the fact that anyone can buy their way to the top of a search engine... it's the wild west and thousands of small business owners are learning a very dear lesson, the hard way.
Are online business loans safe?
The short answer is: It depends. There are a handful legitimate online lenders, but most online loan shoppers don't wind up finding them. Because the scammers make more appealing (fake) offers and that's what is catching peoples attention. Business owners don't want to hear legitimate rates of 20%, when 2% sounds so much better. You wouldn't loan your own money at 2% interest, so why would anyone else? But 2% business loans (although totally fake) will get all the clicks, even though it's a completely fake offer.
Three online business loan scams to watch out for:
Crooks are getting increasingly tech-savvy when it comes to taking advantage of the unwary. This lets them strike at US business owners from outside the country and steal not only money but also valuable personal information. They may approach you by:
- Taking out ads on legitimate websites. Just because someone is advertising doesn’t mean they’re the real deal. Be suspicious of online ads for guaranteed approval or unrealistically good rates. These people don't need to be legit, they just need to pay the search engines so you can find them. Remember, don't confuse a big marketing budget with an ethical company.
- Creating fake websites. Sometimes scammers will create their own imitation business website and then use this to “prove” that they’re real. They might send out links to it in emails and elsewhere. It’s important to remember that having a professional looking website doesn’t necessarily mean a company is legitimate. Check for things like verified contact information and state licenses to confirm legitimacy.
- Cold calls. Whether it’s through text messages, emails, phone calls or social media, beware of someone who keeps dangling a website address in front of you like a fishhook. Don’t click links you find in emails from unknown senders or in texts from unknown numbers. These people can hardly speak English and they don't stop calling.
How to spot a legit business lender
Separating the two is easy once you know how. Scammers can fake legitimacy in a few different ways, but there will always be signs to look out for. The trick is to make sure that everything adds up. You should know:
- The name of the company representative you’re speaking with and the name of the company itself
- The company’s state license number
- The company’s public phone number
- The company’s physical address
Look for anything that doesn’t match.
- Check the license and make sure it matches the name of the company, the physical address and the phone number.
- Call back the phone number to make sure it’s real and that you can reach the company with it.
- Match the physical address with the license number and phone number if possible.
- Search the company’s name online and look for any scam warnings, feedback or red flags from other business owners.
PICK A DOOR, ANY DOOR. WHY TAKE THE CHANCE?
It is important to remember that small business financing is meant to be an individual solution that fits your specific business, business model and goals. Business loans are NOT meant to be bought, sold, or haggled over. So, before you start filling out countless applications and forwarding your financial information to anyone and everyone promising a "better rate," consider your business' complete financial standing, the purpose of the loan and just how 'shopping' for the best rate could negatively affect your credit standing and the future of your business.
We're not the only funding company out there, just a better one.
Reference: Finder - How to avoid business loan scams (1 November 2017)