Business Loan Scams: Borrower Beware!


If you are a new business owner or if this
is your first time applying for a business loan, you’re in uncharted territory. When you apply for a business loan, you’re
providing the lender with your personal and business information, and a lot of money can
potentially change hands. So how do you know who you can trust? Business loan scams can get the best of even
the savviest small business owner, but not if you know the red flags to look out for. I’m Priyanka Prakash, senior staff writer
and small business expert at Fundera, and today I’m going to cover eight common warning
signs of business loan scams. Learn how to spot these so you can avoid becoming
a victim. Warning sign number one: You’re asked for
upfront fees. A good lender or broker should never ask you
for fees before they’ve placed you into a loan product. It’s true that lenders and brokers run for-profit
businesses, and they need to make money. But first they need to do their job; you should
expect to pay fees only after a loan closes. The exception here is for work that’s completed
during the initial stages of a business loan application. For example, you might have to pay a credit
check fee at the beginning of the loan process in order for a lender to evaluate your eligibility,
and banks also sometimes charge initial application or processing fees. But, steer clear of any untested online lenders
who ask you for fees in advance. Warning sign number two: You’re promised a
loan. Another red flag is a lender who promises
or guarantees you funding. No lender or broker can guarantee that you’ll
receive funding until the underwriting stag is over, and you’ve received an official loan
offer. It’s possible that the company making these
claims might just want your business’s financial information or your personal information to
sell to a third party, so they push you into filling out an application. Especially if you have bad credit, it’s easy
to fall for a promise or guarantee of funding, but you should be on even higher alert in
these cases. Many lenders prey on business owners with
thin credit files or low credit history, banking on the fact that they really need the money. If you have bad credit, your best bet is to
improve your credit before you apply or to stick with reputable online lenders. Warning sign number three: The lender has
no website or business email. There’s really no good excuse nowadays for
a business to not have a website, and this includes lending and brokerage businesses. Anyone who you’re working with to get funding
for your company should have a transparent online presence. Ideally, the website should include a summary
of their loan products, their interest rates, and fees, but at the very least, they should
have a business address and contact phone number listed on their website. Before filling out any kind of online loan
application, especially one that contains sensitive data, it’s a good idea to try
calling the company and see if they actually have a working phone number. They should also have a business email address,
not a personal email ending in @gmail.com. Having a website or business email unfortunately
does not guarantee that you’re not being scammed, but it does give you some added reassurance
that you’re working with a reputable lender. Warning sign number four: non-traditional
advertising. Did you get a Facebook message or an email
from a lender pre-approving you for $100,000 in funding. Well, stop right there because lenders and
brokers typically don’t use such advertising tactics. You’re much more likely to see an online ad
or hear about a lender by word of mouth. When you do see an ad for a lender, check
if they add links to their website or landing page and then proceed from there. Warning sign number five: unsolicited contact. As we mentioned before, business lenders and
brokers typically either advertise online by word of mouth and occasionally by direct
mail. If you receive a cold call or cold email out
of the blue with details of a loan offer, resist the urge to give them any personal
or financial information. The best lenders out there don’t need to rely
on these tactics to get customers. Warning sign number six: high pressure sales
tactics. Borrowing money for your business is one of
the most important things you’ll do in your journey as an entrepreneur, so you should
have the opportunity to compare your options carefully and not be pressured into making
a decision that could cost you hundreds or thousands of dollars in interest and fees. That’s why it’s important to take a step back
if a broker or a sales rep at a lender is overly pushy. Now it’s true that loan rates can fluctuate
with the market, and a good lender will want to inform you about impending rate changes
or fee changes. However, if you regularly hear a lender saying
that its offer is only good for a “limited time,” or that it’s your “only chance”
to act on an offer, better to go with someone else. Scammers bank on the fact that you’ll feel
rushed and make a poor decision. Warning sign number seven: Related services
are offered for free. Sometimes lenders offer services designed
to help you qualify for a loan product. For example, a lender might offer to help
with business plan writing or sell credit repair services. That’s not necessarily a bad thing, but you
shouldn’t be wary if these services are offered for free. That could just be a lure to get you to provide
proprietary or personal information. Before going ahead, at least see if you can
read customer testimonials about the lender’s value-added services. Although customer reviews can be faked, you’ll
feel more reassured going ahead with the lender. Warning sign number eight: Loan terms are
too good to be true. If you have a credit score of 500, but a lender
offers you an 8% interest rate, you’re probably about to walk right into a scam. Interest rates and fees on loans typically
have an inverse relationship with credit history. The better your credit history is, the lower
your rates and fees are likely to be, so if a loan offer seems just too good to be true,
that’s because it probably is. And those are eight red flags of business
loan scams that you should be on the lookout for when applying for funding. Hopefully, these tips will make your business
loan experience a positive one. The advantage of working with a marketplace
like Fundera is that the lenders on the network are pre-vetted, so you know you can trust
them. A loan specialist will walk you through all
the different options tailored just for your business based on factors like credit score,
time in business, and business revenue. To learn more about different business lenders
and the process of applying for a business loan, go to fundera.com/blog, and subscribe
to our YouTube channel for more videos. Thank you for watching.

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