How To Protect Yourself Against Business Loan Scams

Learning how to protect yourself against business loan scams is a critical part of running a small business in the modern world.

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Small-business owners often need access to capital to grow their company. If you’re in the process of applying for business loans, it’s important to be wary of loan scams. There are plenty of reputable lenders, but some are known for predatory lending practices. Unfortunately, most victims of lending scams usually don’t recover their losses.

Learning how to protect yourself against business loan scams will greatly reduce the risk of falling prey to a disreputable lender. Let’s discuss how to spot and avoid unsafe business loans.

Table of contents

Business loan scam red flags

If a business loan seems too good to be true—it probably is. Here are a few of the tell-tale signs that could indicate a business loan scam. If you come across a lender with these practices, it’s best to go with another option.

  • Guaranteed loan approval
  • Rushed loan process
  • No live support or contact
  • Terms and rates aren’t available upfront
  • Fees charged before you’re approved

How to get loans from reputable lenders

Once you know the signs of a business loan scam, you’ll be unlikely to fall for the scammer’s tactics. Here are some other important steps you can take to protect yourself and your business.

  • Don’t rush the application process. Be sure you understand the terms of the loan, fees, rates, and fine print before moving forward—or even before you provide personal information like a Social Security number.
  • Remember faster isn’t always better. Quick cash can be beneficial to your business, but sometimes it comes at a cost. If a lender guarantees loan approval or says they’ll provide funds within a day or less, it could be a red flag.
  • Don’t pay money upfront. Reputable business loan lenders will never require you to pay any fees before you’re approved for the loan. If a lender asks you to hand over cash while you’re still in the application process, run the other direction.
  • Research your options. Never rush through the decision-making process when it comes to choosing a lender. You probably have more options than you think, and the right lender could help you save thousands of dollars in the long run.
  • Talk to an expert. Even if you don’t have an in-house lawyer or accountant, it’s smart to talk to one before you finalize a business loan.
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What to do if you’re a victim of a business loan scam

Despite your best efforts, you may fall prey to a business loan scam. In that case, it’s important to act quickly to protect yourself from any further losses. Follow these steps to minimize the damage:

  1. Contact your bank. Get in touch with your bank right away to cancel any transactions that are being processed. In some cases, you may even need to close your account to protect your funds.
  2. File a report. Report the loan scam to local law enforcement and the Federal Trade Commission. Make sure to keep any relevant documentation handy.
  3. File a complaint. The Internet Crime Complaint Center and Consumer Financial Protection Bureau will review your complaint and send relevant information to the appropriate parties, including federal, state, or local law enforcement.
  4. Inform your credit bureaus. The scammers have your personal information, so it’s important to file a fraud alert with your credit bureau to avoid the risk of identity theft. Your credit bureau should provide you with a free credit report, which you can review to identify any fraudulent activity.
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The takeaway

Loan scams can be devastating to small businesses, but by knowing the signs to look out for, you can better protect yourself and your business. Never pay money upfront or give our personal information to lenders touting guaranteed approval or unbelievably fast cash.

If you are a victim of a loan scam, act quickly by reporting the scam to local law enforcement, your bank, the credit bureau, and other relevant authorities.

Would you like to learn more about online payment security? Check out Online Payment Security: Top 6 Safety Practices at Business.org.

Related reading

Don’t qualify for a business loan? Get a personal loan instead.

Business loan scams FAQ

How do I protect my small business from scams?

There are many things small-business owners can do to protect themselves from scams. Here are a few tips:

  • Keep records of orders, purchases, and invoices.
  • Use secure payment procedures.
  • Verify vendors.
  • Avoid sharing personal or financial information.
  • Set up firewalls.
  • Create strong passwords.
  • Get business insurance.

One of the best ways to avoid business loan scams is to use reputable lenders. We highly recommend our favorite lending marketplace: Lendio.

What do I do if I get scammed by a loan company?

Unfortunately, if your small business is scammed by a loan company, it’s unlikely that you’ll recover your losses. However, you can take the following steps to protect yourself:

  1. Contact your bank immediately. Cancel any transactions that are being processed and close your account if necessary.
  2. Report to local law enforcement and the Federal Trade Commission right away.
  3. File a complaint with the Internet Crime Complaint Center and Consumer Financial Protection Bureau.
  4. Inform your credit bureaus of the scam.

How do I protect myself from scams?

You can protect your small business from scams by keeping organized records, using secure payment processing methods, setting up website firewalls, and only sharing financial information with verified sources. You should also learn to spot the signs of a business scam. Here are a few common red flags:

  • Unsolicited contact
  • Lack of physical address
  • Asking for money upfront
  • Guaranteed loan approval
  • High pressure
  • Unrealistic loan terms

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Brooke Kunz
Written by
Brooke Kunz
Brooke is a copywriter and artisan ice cream enthusiast dwelling in California's sunny Central Valley. She's happiest when hiking in the backcountry, baking an overly complex cake recipe, or reading an engrossing new memoir.
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