written by khatabook | November 15, 2022

Types of Online Business Loan Scams & How to Be Safe Online

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Table of Content


The internet alternative lending market has grown rapidly in recent times, making it simpler than ever to obtain company loans. Unfortunately, this has also led to an increase in small company loan scams, making businesses more susceptible to the pandemic.

Scammers and hackers operating business lending schemes profit on the need for quick, affordable borrowing among business owners. By impersonating reputable companies, bankers, and other people you trust, such as small business loan brokers, these con artists attempt to steal money, personal information, and business information.

Did You Know?  The Reserve Bank of India (RBI) reported a total of around 9,103 incidents of bank fraud in India during the 2022 fiscal year.

What is Online Scamming?

Scammers have developed many different tricks and plans over the years to con people. Because the proprietors of these businesses and organisations may have trouble getting a loan, they frequently target small and micro businesses. Or, in certain instances, these business owners lack support and fall for these frauds.

Most con artists will try to reach you online via email, websites, or search engine advertisements. These aren't the only options, though. Scammers also use direct mail fraud, SMS fraud, and phone fraud. When someone approaches you for additional money, personal information, or confidential company information, your greatest protection is to be wary.

Also Read: What is SIDBI? What are the Objectives of SIDBI and SIDBI Schemes?

Ways of Detecting Online Business Loan Scams

Due to the fact that some of these criminals migrate from bank to bank, it is challenging for a banking institution to investigate and determine who is responsible for these operations. There is no pattern inside one bank, as seen by the trail of businesses that leave from various banks and travel to different states. The following are warning signs that could point to a business loan scam-

1. Irregular Contact

Credible small business lenders don't frequently use cold calling to get in touch with new potential borrowers.

Consider it your first red flag if you receive a call from someone giving you a business loan out of the blue and you have never requested contact through an online form or any other means.

2. Alternative Advertising

Typically, legitimate business lenders won't post advertisements in private Facebook messages or other places. If you come across advertisements for business loans that seem odd, it's probably because they are, and whoever is spreading them is up to no good. This is a useful strategy for avoiding business loan fraud.

3. Cash Demanded Up Front

Never give someone money up front in order to obtain a business loan. There is never a good reason why you should have to pay money to get money for your firm. If any lender, loan broker, investor, or platform requests an upfront payment of any kind from you, break off the contact right once and go on.

4. Not having a physical address

Even online lenders who only communicate with their clients online have registered physical addresses for their corporate headquarters that are simple to find and study. In fact, sanctioned lending institutions are required by law to publish their physical addresses; therefore, if you have any doubts about the legitimacy of a loan offer, requesting the company's physical location is a wonderful approach to determine whether or not this is just another business loan scam.

5. Regular Email Account

Generic email addresses are not used by licenced lenders or loan brokers. Receiving correspondence regarding a business loan from a generic Gmail account is a fraud.

There is no guarantee that a lender or loan broker is legitimate just because they have a website or email address associated with their domain. Anyone with little technological knowledge may buy a domain and set up a website that mimics a real company.

6. 'Guaranteed' Acceptance

There is no such thing as "assured" acceptance for a business loan among reputable business lenders before a credit check and financial evaluation.

You have most probably come across a business loan scam if you see advertisements or get unsolicited contact for a company loan that mentions "assured approval."

7. Pushy Sales Techniques

Are you speaking with a loan officer or broker that seems just a little bit too eager to have you sign the dotted line on your small business loan agreement? If they are employing high-pressure techniques, this could be just another business loan scam.

Whether they are trustworthy or not, any loan agent who won't let you take a night to think over such a significant choice isn't someone you should be working with.

8. Terms That Are Too Good to Be True

Is this financial opportunity simply too good to be true? to put it another way. Is the interest rate significantly lower than what you've seen elsewhere, or are you being offered money up front without having given any details about your company idea, financial history, or repayment strategy? This could be a scam firm, trying to lure you.

Also Read: Types of Loan - What are different Types of Loan in India?

Types of Scams

Scams involving business loans are more common than ever for small enterprises. Many businesses have taken advantage of the various funding possibilities that are now offered over the Internet to obtain loans, but scammers have also viewed this as a gold mine of opportunity. Following are some types of online business loan scams.

1. Advance-fee Scams

Scams that demand an upfront payment as a "application fee," "processing charge," or a comparable amount offer cheap debt relief in exchange. They take your money and go without helping you, as you might anticipate. Fraud.org, a division of the nonprofit National Consumers League, advises not to pay upfront, not to trust a lender who contacts you by phone, and to only conduct business with licenced businesses in order to avoid falling victim to this type of scam.

2. Fraudulent peer-to-peer lending

Peer-to-peer (P2P) lending has been successful for many businesses thanks to reputable firms that connect lenders and borrowers online, eschewing traditional financial institutions. Knowing this, con artists can pose as possible lenders and provide funding without doing a credit check. Avoid falling for that. The sting could come from illegally excessive interest rates or perhaps just outright theft. Requests for upfront payments, wire transfer requests, and/or promises of rates before you undergo a credit check or submit an application are warning flags for these frauds. If you're interested in this kind of funding, do your research in advance to make sure the company you work with is respectable and has a successful track record.

3. Fraudulent consulting fees

A consultant fee scam involves someone contacting you via email or an internet advertisement to "assist" you get a loan. The idea is that obtaining a loan is a difficult process, and you should hire a consultant to assist you negotiate a lower rate. Once more, you must pay a price in order to receive the promised assistance; but, after you pay, the "consultant" vanishes.

4. Fraudulent Funding Kits

Scams involving fundraising kits are comparable to those involving consultant fees in that they offer to guide you through the funding process. These notably provide a "kit" to assist you in obtaining funds, whether through loans or seemingly unattainable grants. Both of these scams may appear to be legitimately beneficial to individuals with limited financial knowledge, but their primary goal is to defraud you of your money rather than significantly affecting your ability to acquire it.

5. Credit Repair Scams

Most individuals are aware that your credit history and current credit score play a role in your ability to obtain a loan, particularly one with a favourable rate. Companies may be seeking for a solution to boost their credit if their credit scores have been negatively impacted by the COVID-19 economic crisis. It comes as no surprise that con artists use this and provide those in need of loans with a method to swiftly rehabilitate their credit. Some assert that they may increase your score by 100 points in a week or less. Usually, anything like that won't occur. Working with your creditors is the greatest way to restore your credit.

6. Ghost Investor Scams

Ghost investor scams typically take the form of messages telling its victims that an unidentified investor is interested in investing a significant sum of money in their company. Of course, they only require that payment to get things started. You wouldn't generally think that a wealthy Nigerian prince would want to send you money as a customer. Avoid falling for the same fraud that is being used against your company. It is likely unlikely if it seems unlikely.

The good news is that they are quite simple to avoid if you use common sense and keep a sense of scepticism, even though there are more fraudsters than ever preying upon individuals looking for business loans.

Also Read: Mudra Loans - Check Out a Complete Guide on How to Apply for Emudraloan

Conclusion:

The most secure way to prevent a loan scam is to beware of what to look for while applying. Keeping your business safe and taking preventive measures will keep you safe from potential scammers. Hopefully, this article has updated you about small business loan scams, direct business lending scams, etc. 

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Can a loan company ask for money upfront?

Ans:

A regulated lender will never ask you to pay upfront fees for a loan.

Q: Is it normal for a loan company to ask for your bank username and password?

Ans:

Anyone asking for your business username and password to your online banking is an indicator of a scam.

Q: How do loan scams work?

Ans:

A loan scam is a loan offered under false pretenses where the scammer hooks their potential target with big promises, hiding actual cost, posing a fake identity, and doing other impersonating tricks.

Q: How do I know if a loan company is legitimate?

Ans:

To determine the legitimacy of a loan lender company, check for contact information, ensure state registration and investigate online reviews of the company.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.