Loan Scams Lure 'Fees' From Unwary Business Owners
Success in business is no guarantee you'll be too savvy to fall for a loan scam.
Hard-working business owners often are short of funds for expanding their businesses and short of time to explore their options.
That combination can make you vulnerable to fraudulent loan offers, which can take a variety of forms. Scammers target business owners via Web sites, e-mail, U.S. mail, telephone, or even ads in the local newspaper.
Searching for business
Geraldine, the owner of a small transportation company in a southeastern state, contacted several financial institutions in search of business capital.
Then she got an e-mail that appeared to be from an American company offering quick loan access. The e-mail said the loan would be hers for an $840 processing fee, which must be paid in advance.
Geraldine sent the money, but the loan proceeds never arrived. Instead, she got a request for more money, which made her wary. Further investigation proved she had been taken in by a scam.
An e-mail block prevented further offers from that source, but Geraldine reports she now receives 10 to 15 e-mails each day offering loans and other financial "deals." She suspects they are all scams.
Many credit unions have member lending services to help businesses, including those too small to get favorable rates and services from most lenders.
Geraldine shared her story with the National Consumers League, (NCL), a nonprofit advocacy group in Washington, D.C., that seeks to represent consumers' interests in the marketplace. The NCL operates its Fraud Center to protect consumers from all forms of fraud and has an online section devoted to information about business fraud.
James Perry, NCL's consumer service coordinator, says business expertise may fail to protect business owners from scammers who specialize in crafting believable offers.
"Business owners, just like consumers, fall for a scam because the scam itself seems so real," Perry says. "The criminals that are committing these scams are professionals, and just like any professional, the more you do something day in and day out, the better you become at it."
Many loan scams ask business owners to pay an "advance fee" or hire the services of a "credit arranger." Contact is almost always made by telephone or e-mail.
Offers typically promise quick access to hard-to-find funding.
"This scam always involves pretending to be a loan officer after a consumer, in most cases, goes online looking for and applying for a loan," Perry says. "The loan officer assures them they are in good standing with this loan company or banking institution or even a private lender."
In Perry's experience, many business owners who fall for a scam have been unable to get a loan from local lenders. This makes them more susceptible to fraudulent offers.
Scammers may contact prospects through "spam," or unsolicited e-mails, or they may collect their information from Web sites designed to look like part of a legitimate financial institution.
Perry says fraudsters also find ways to intercept traffic from legitimate Web sites that allow business owners to fill out a single loan application submitted to multiple lenders. He shared the progression of a typical scam using another complaint submitted to NCL.
"Three days later, the consumer is contacted by a lending group who tells him they obtained his information off of the lending Web site where he posted his request for a loan," Perry says.
This sets the stage for a familiar pattern of contacts from the scammer to coax one or more payments out of loan applicants.
Scammers are always waiting to take advantage of the unwary.
"He was told that, after looking over his information, they can get him the $20,000 loan he has requested," Perry says. The scammer faxed documents for a loan at a rate of 7% interest and then asked the applicant to provide account numbers so loan proceeds could be deposited into the applicant's account by 3 p.m. the next day.
"When tomorrow comes and there's no money, he gives them a call and he's told because of his poor credit score the lender would like for him to insure the loan, just in case his business fell through or something should happen to him," Perry says. The scammer asks for 10% of the loan for insurance and promises to direct deposit the loan proceeds as soon as the fee is paid by wire transfer.
The $2,000 fee is paid, but again the loan proceeds fail to appear. This time, the scammer explains that he made an error when he quoted the fee amount. It should have been $3,500, so the applicant can have the loan as soon as another $1,500 is wired to the loan company.
While most scams originate on the Internet, some business loan scams capture victims through ads in the local newspaper. Perry notes that scammers aim to create offers that appear both appealing and authentic.
Build a face-to-face relationship with a lender.
The Better Business Bureau (BBB) also has received numerous complaints from business owners taken in by loan scams. The BBB notes that many of these scams originate in Canada and other countries, which means it's unlikely if not impossible to recover funds paid out in fraudulent loan fees.
The NCL maintains a list of 12 common loan scams, including fraudulent loan offers, on its fraud Web site. Other frauds involve asking business owners to pay "something for nothing" by making deposits on bargain-priced equipment, supplies, or services that will never be delivered, or billing them for advertising or other services that were purchased without the business owner's permission or never purchased at all.
"What ties the 12 different scams together is the fact that any one of them can cause a business owner to lose from $100 to $1,000," or even more, Perry says. The NCL offers five rules that can help business owners avoid these scams (see sidebar).
Building a face-to-face relationship with a lender is typically the best way to gain access to loans and other financial products. Many credit unions have established member business-lending services to help businesses often deemed too small to get favorable rates and services from most lenders.
Business owners fall for scams because they seem real.
"Business owners should look for loans in their area, where they can go into an office," Perry says. "Even then, they should do their homework by contacting their local banking commissioner to ask questions about that loan institution. If possible, get a recommendation from someone you know and trust who already has a history with this lender."
Perry adds that business owners always should trust their intuition that tells them something "doesn't feel right" or is too good to be true. Finally, they should remember that scammers are always waiting to take advantage of the unwary.
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