The recent rapid growth of the online lending industry has made it easier than ever before for small business owners to get the funds they need to reach their business goals. However, that has also seen a jump in small business owners falling victim to a proliferation of fly-by-night business loan scams across the internet.
Loan scams continue to grow by about 50% compared to the same period last year. From January to March the number of cases rose to 421, from 281 compared to last year. Fake loan schemes were one of the common tactics – scammers got away with around $41.3 million between January and March this year.
At B.Smart, we are concerned that uninformed business owners are unable to protect themselves from unscrupulous fly-by-night online scammers whose sole objective is to fleece them of their money and data.
Hence, we have listed down six tell-tale signs of a dubious operator, in the hope that business owners will be able to spot these business loan scams and avoid being tangled by their traps.
Stay Alert
Scammers are becoming increasingly sophisticated. If something feels off about a loan offer, trust your instincts and verify the legitimacy of the lender before proceeding.
1. Advance Fees
No reputable brokers, licensed moneylenders, banks, and financial institutions will ever demand any upfront fees to process any loan applications. The moment such a request is made, business owners must walk away and never return.
2. Fee Payment Method
Business loan applicants will never be asked to fork out their own money to pay any fees pertaining to their loan applications. All processing fees, if any, will be deducted from the loan disbursement. Anyone who asks applicants to do otherwise must be treated with suspicion.
3. Unsolicitation
Cold calling is not a common method used among credible small business lenders for connecting with new prospective borrowers. If business owners are contacted by someone from out of the blue offering a business loan even though they have never initiated the contact or expressed interest through online or offline means, consider that as the first clue that something might be amiss.
4. Non-Traditional Advertising
Business owners must keep in mind that licensed moneylenders are prohibited from advertising on social media. The only online presence allowed is on their very own website. Business owners must stay far away from any business loan provider advertising on social media.
5. Lack of Physical Address
Before proceeding with any loan application, business owners should visit the loan provider's website to check if it has a legitimate office address. They should visit the registered office premises if necessary. Scammers are unlikely to have an office address and this is one sure way to find out if they are above board.
6. GST Charge Scam
Goods and Services Tax (GST) is exempted from any types of business / personal loans. The moment the lender informs you that the loan has been approved and request for you to pay GST, this is a big red flag. Business owners must walk away from discussions immediately.
"The interests of our clients are our utmost priority. By informing our clients on the possible pitfalls that they may face while sourcing for business loans, we are empowering them to make sound strategic decisions that benefit their businesses."
— Mr. Kenny Chan, Director of B.Smart
Although legitimate and trustworthy online lenders have been immensely valuable to SMEs, owners will do well to stay alert and guard themselves against these unscrupulous self-proclaimed "business lenders" or "loan brokers" whose real goal is to scam their money and data before disappearing into the night.
When in doubt, always verify the credentials of any lender through official channels. Check if they are registered with the relevant authorities and look for reviews from other business owners who have worked with them.