Guest Post – How to Avoid Small Business Loan Scams

Have you been approached by phone or email for a business loan or line of credit?  How do you know if the offer is legitimate, or part of a scam designed to separate you from the money you have?  Today’s guest post will answer those questions, and more.

A guest post by Jeff Gitlen

If you’re a small business owner, then you’re already aware of how difficult it can be to build, expand, and operate your own business. Getting a small business loan can be an ordeal all its own – and sadly, there are a number of scams out there that can harm your business, even permanently. In fact, small businesses are the most common victims of business financial fraud, with 31.8% of them becoming victims of a scam.

There are, however, some simple tips to protecting yourself from a small business loan scam, and with a little research and work you can ensure you’re not a victim. First, let’s take a look at what kinds of scams you might see as a small business owner looking for a loan.

Types of Scams

You’ve probably seen the ads – or even received them in your mailbox. Lenders claim they can get you large amounts of money fast, even without anything securing the loan. Bad credit? No problem, they’ll tell you. It seems like no matter how bad your financial situation is, there’s a company that claims it is willing to offer you huge sums of unsecured money.

Other companies will attempt to sell you packets of information on funding sources. They often claim to have information not available elsewhere, and for a fee they’re willing to share that information with you.

Equipment loan/lease programs are also a popular scam. You might receive a letter claiming that you are qualified for an equipment loan or lease, and all you need to do is send in your first and last month’s payment. There’s only one problem – you’ll never receive the equipment, and never hear from the company again.

You may be contacted by a so-called “investor,” who claims to be representing a financial fund or a wealthy individual who claims to want to invest in your business – as soon as a bit of paperwork is done. Several fees (and maybe some confidential information about your business) later, you’ve done a lot of work with no return.

Some scammers aren’t after your money; these criminals want your personal information, such as your date of birth, mother’s maiden name, or even banking and credit card information, which they’ll use to either make unauthorized purchases or steal your identity.

Ways to Recognize a Scam

The hard truth is that scammers are always coming up with new ideas, and new ways to steal from you. Many of these scams share characteristics, however, and if you can recognize those – and use some simple best practices when dealing with companies – you can ensure your business isn’t the next one harmed by thieves.

It’s important to note that like it or not, credit rating and the financial situation of your business play a huge role in whether you can get a loan from a reputable lender. If a lender says you “can be approved” for a large sum of money – unsecured – regardless of your past credit history, that’s a good sign that you’re dealing with a disreputable company. The proof of that can be found in the fine print – and the application fees. If you are ever asked during a loan application process for any kind of upfront fee, regardless of what you’re told it’s for, walk away.

If a company claims that they “guarantee” your loan, that’s a positive sign of a scam. No reputable financial institution will guarantee acceptance of a loan before they ever see your application. It’s that simple. When you see the word “guaranteed” on an ad – especially if it says you’ll be approved regardless of credit – you should steer clear.

You can also look at the address of the company who’s contacting you. Many foreign scammers will rent a post office box in the United States in order to appear genuine. Ask for a physical address – every real lending company has one, even if they operate primarily online. If the only address they offer is a PO Box, you have your answer.

If you’re offered a funding kit, in which you’re promised a long list of ‘guaranteed’ lenders who want to lend you money, understand that in most cases the information you’re given is false or misleading – and that’s if you get it at all. Once you’ve paid for the product, in many cases you won’t even receive it; your best bet is to simply do your own research on lenders instead of getting scammed for a “kit.”

How to Report a Scam

If you think you’ve identified a small business loan scam, you can do something about it. The Better Business Bureau maintains a form on their website where you can report the scam; you can also check out scam reports submitted by others. If you’ve been victimized, you can also file a report with your local law enforcement. Foreign scammers can be reported to the Federal Bureau of Investigation at

More information:

Author: Jeff Gitlen

Jeff Gitlen writes about a wide range of finance topics including everything from student loans to credit cards to small business financing. Jeff’s work has been featured on a number of sites including Bloomberg, CNBC, Forbes, Market Watch, and more.


About the Author:

I am a cybersecurity and IT instructor, cybersecurity analyst, pen-tester, trainer, and speaker. I am an owner of the WyzCo Group Inc. In addition to consulting on security products and services, I also conduct security audits, compliance audits, vulnerability assessments and penetration tests. I also teach Cybersecurity Awareness Training classes. I work as an information technology and cybersecurity instructor for several training and certification organizations. I have worked in corporate, military, government, and workforce development training environments I am a frequent speaker at professional conferences such as the Minnesota Bloggers Conference, Secure360 Security Conference in 2016, 2017, 2018, 2019, the (ISC)2 World Congress 2016, and the ISSA International Conference 2017, and many local community organizations, including Chambers of Commerce, SCORE, and several school districts. I have been blogging on cybersecurity since 2006 at


  1. ramesh  October 17, 2019

    Hi Bob,
    I found your article very informative and helpful how we should be careful “Ways to Recognize a Scam” These was very help full can you write about Payday loans as well I am struggling with those. Thank you

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  3. Marian Watts  March 8, 2023

    It is important to be aware of loan scams when considering a small business loan. The best way to avoid scams is to research the lender and make sure they are reputable and credible. Make sure to read through the loan terms and conditions carefully and make sure to ask questions if anything seems unclear. Additionally, be aware of lenders who ask for upfront fees, as this could be a sign of a loan scam. Be sure to compare rates and terms among different lenders and make sure to research any unfamiliar lenders. Finally, trust your gut and do not hesitate to walk away if something seems too good to be true.

  4. Nihal Pasi  October 31, 2023

    Research the Lender:

    Verify the legitimacy of the lender by way of checking their internet site, touch facts, and bodily cope with. Scammers may additionally use fake web sites and untraceable touch details.
    Check for Licensing and Registration:

    Make sure the lender is registered and licensed to offer loans for your country or u . S . A .. Government web sites or regulatory companies can offer this facts.
    Be Cautious of Unsolicited Offers:

    Be cautious of unsolicited loan offers via email, smartphone calls, or social media. Legitimate creditors do not typically reach out to you on this way.
    Watch Out for Red Flags:

    Be cautious if the lender asks for an in advance rate, ensures approval, or would not require a credit score check. Scammers frequently use these procedures to entice victims.
    Read the Loan Agreement Carefully:

    Review all mortgage files and agreements very well. If some thing appears doubtful or suspicious, ask for explanation or searching for prison recommendation.
    Research Reviews and Complaints:

    Look for on line reviews, purchaser complaints, and reviews about the lender. A valid lender ought to have a fantastic recognition.
    Avoid High-Pressure Sales Tactics:

    Scammers might also strain you into making a brief decision. Take a while to consider all options and don’t be rushed into signing any agreements.
    Verify the Loan Terms:

    Understand the hobby rates, compensation terms, and any related fees. Make positive you may without problems manage the reimbursement schedule.
    Beware of Personal Information Requests:

    Be careful about sharing private or financial facts with a lender till you’ve demonstrated their legitimacy. Scammers can use this facts for identification robbery.
    Consult Professionals:

    Seek advice from financial advisors, attorneys, or accountants before moving into any loan agreement. They let you evaluate the terms and legitimacy of the lender.
    Use Established Financial Institutions:

    Consider operating with famous banks, credit unions, or installed on-line lenders. They have a recognition to uphold and are typically greater reliable.
    Report Suspicious Activity:

    If you believe you studied you’ve encountered a small business mortgage rip-off, file it to the correct authorities, consisting of the Federal Trade Commission (FTC) or your neighborhood customer safety company.
    Be Skeptical of Cryptocurrency Loans:

    Be extremely careful whilst coping with creditors that request cryptocurrency bills. Cryptocurrencies are often desired by way of scammers because of the relative anonymity they provide.
    Remember that scammers usually evolve their tactics, so it’s crucial to live vigilant and use not unusual sense whilst searching for a small commercial enterprise loan. Always err on the side of warning and behavior thorough due diligence before moving into any monetary agreement.

  5. Vivek Maurya  October 31, 2023

    Research and due diligence: Conduct thorough studies on the lender or monetary organization you intend to paintings with. Look for opinions, testimonials, and any complaints or warnings from other business owners. Verify the lender’s credentials and test if they are registered with relevant regulatory bodies.

    Understand the phrases and conditions: Read and understand all phrases and situations of the loan agreement. Be cautious of hidden costs, high-hobby quotes, and any clauses that appear uncertain or unreasonable. Clarify any doubts with the lender before signing any documents.

    Avoid prematurely fees: Legitimate creditors generally do no longer ask for prematurely expenses or payments earlier than presenting the mortgage. Be wary of any lender that requests price before disbursing the loan. Additionally, be cautious of any requests for private or touchy facts that appears unnecessary for the mortgage utility process.

    Verify the mortgage offer: Compare the loan provide with the ones from different respectable lenders to make sure the terms are affordable and competitive. Be careful of creditors imparting surprisingly low interest quotes or making unrealistic guarantees. If a suggestion appears too true to be actual, it is probably a red flag for a capability rip-off.

    Seek recommendation from depended on specialists: Consult with financial advisors, lawyers, or different trusted professionals before finalizing any loan agreement. They can offer valuable insights and assist you perceive any capability risks or fraudulent activities.

    Check for a physical deal with and get in touch with facts: Legitimate creditors normally have a physical office cope with and quite simply to be had contact facts. Verify the lender’s bodily vicinity and phone information to make sure they may be a legitimate business entity.

    Trust your instincts: If some thing would not sense proper or you have doubts about the legitimacy of the lender, believe your instincts and do not forget looking for alternative financing alternatives. Avoid speeding into any financial choices and make the effort to evaluate all aspects of the loan provide.

    Report suspicious pastime: If you observed which you have encountered a small commercial enterprise mortgage scam, report it to the suitable authorities, which includes the Federal Trade Commission (FTC) or the Better Business Bureau (BBB). Reporting scams can help prevent others from falling victim to fraudulent sports.

    By following those precautions and closing vigilant, you could lessen the danger of falling victim to small enterprise loan scams and guard your enterprise from ability economic damage.


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