5 Business Loan Scams To Watch Out For

business loan scams

How Most Common Business Loan Scams Work

A business needs financing to fund daily operations, growth such as improvement, renovation or expansion, and other investments. The go-to option for these is a business loan. The most common are Small Business Administration (SBA) loans, equipment loans, invoice factoring and financing, merchant cash advances, personal loans, and many more. However, with their increasing demand, many entrepreneurs became victims of business loan scams.

These type of financial scams typically target startups and small and medium-sized enterprises (SMEs) with guaranteed loan applications. They have a high credit risk for many traditional lenders, so they usually hesitate to offer loans to these businesses. That’s why some new and small firms immediately accept loans with guaranteed approval without knowing they’re business loan scams.


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Aside from guaranteed approval, here are other telltale signs of business loans scams you should be wary of a business owner:

business loan

1. Upfront Payments

Be careful when applying for loans promising 0% interest or no or low credit requirements applications in exchange for affordable yet upfront payments. These are often labeled as payments for “processing,” “application,” or “insurance” by scammers. Such loans are currently among the top five loan scams. However, not all financing companies that ask for upfront payments are scammers.

Many legitimate lenders will charge you before taking out a loan, especially for credit checking and underwriting processing. Even a legit online loan has origination fees, and it’s normal when processing a new loan application, whether over the Internet or in person.

What’s not normal is when you are promised access to loans, credit cards, or any credit, but first, you must pay low fees upfront. Most of the time, they won’t disclose these fees until you apply for a loan. They’ll also call you and offer loans or other credit. Telemarketers can’t promise loans or additional credit and charge fees before they deliver. This is illegal under the Telemarketing Sales Rule.

2. Expensive Consultancy Fees

The loan application process for most business loans is extensive and unvaried. It has a lot more complexities than personal loans. Most of the time, lenders run a background check and validate all documents submitted by a business owner before judging whether or not they’re eligible for a loan.

Although these requirements and loan application processes are readily available online, many still need help. After all, they’re very tedious and confusing. That’s why many determined business owners will seek assistance from consultants. While seeking professional help when in doubt is good, some may ask for unbelievably high-priced fees.

Many of these fraud consultants will victimize business owners who think they cannot borrow funds from traditional lenders. They will initially persuade you that taking a business loan from traditional lenders is a long and complicated process. When you take the bait, they’ll eventually offer exclusive low-interest deals that don’t exist.

3. Funding Kit Scams

Many scammers email business owners about a grant or funding the government offers. They usually call it a “kit,” which requires upfront fees to access it. Similar to upfront payment scams and expensive consultancy fees, these funding kits are just scams.

The United States (US) government never asks third-party agencies to email about nor offer grants, except for their permitted researchers and developers. If they have to, the email addresses should have top-level domains (TLD), such as .gov or .org. Alternatively, instead of emailing, they’ll publicize the grants and post them on grants.gov.

4. Ghost Investor Scams

Another popular scheme amongst the business loan scams through emailing is ghost investor scams. These scams are meticulous. They stalk many business websites and analyze their financial situations.

When they see a company struggling, they immediately email to inform them that an investor is interested in supporting your company financially. However, you’ll instantly know it’s a scam when they ask fees again to set everything in motion.

5. Credit Repair Scams

Financially distressed business owners are also the main targets of credit repair scams. These are often offered as “services,” falsely claiming they can improve credit scores.

Most of the time, they inform you that you have negative information on your credit report and will offer to remove it to improve your credit score. However, that information is accurate, so you may end up paying hefty fees.

By US law, the three credit reporting agencies (CRAs), namely Equifax, Experian, and TransUnion, offer a complimentary copy of your credit report every year. Avail this to check if you have negative information.

Also, don’t believe your poor credit score or history can improve instantly. It’s hard to tell the exact recipe to determine the timeline. Research shows that it depends on the cause of your low score, but typically it may take around three months up to six years.

The quickest way to verify whether a business loan is legit is to check the lender’s registration at the US Federal Trade Commission (FTC) or your state’s attorney general office. You may also check it at Better Business Bureau, a non-profit organization that helps you find trustworthy organizations.

How To Report Business Loan Scams

Let your entrepreneurial friends know about these 5 types of business loan scams. Feel free to share this page if it was helpful. Meanwhile, you can report financial scammers and any other suspicious loan activity to the Federal Trade Commission (FTC) using the portal below:

Report To The FTC Here

How To Protect Yourself More

If you want to be amongst the first to receive notifications about the most notorious scams every week, subscribe to our Scam Detector newsletter. You will receive periodic emails from us with insightful tips. That will include how to prevent fraud and information about the newest tools you can use to fight crime.

Meanwhile, feel free to educate yourself with some other loan fraud-related articles. They are listed under this paragraph, so that you know more about online security. Last but not least, if you have any bad experiences, make sure to use the comments section below to expose other scammers.

Credit Repair Scam

Top 4 Most Common Loan Scams


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selma hrynchuk
Selma HrynchukSelma is a fraud prevention specialist renowned for her expertise in private eye investigations and a remarkable partnership with law enforcement agencies. Beyond her investigative triumphs, her public speaking engagements and written works have empowered countless individuals to protect themselves and stay ahead of deceptive schemes. Selma's legacy shines as a tenacious agent of change, unyielding in her commitment to battling fraud and ensuring a safer world for all.

3 thoughts on “5 Business Loan Scams To Watch Out For”

  1. Silvia Zetina Ramirez

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  2. Victor Ramirez

    Hello, I’m Victor and I have loan with, ESTIMAID PREMIUM, it’s a banking on line, but I don’t now if this bank is fake or real . Can you guys help me with this.

    Thanks.

  3. I have been scammed several times in Crypto and Bitcoin. Paypal games that when you play them i will win money since i paid magical tree to google i did not receive a cent from paypal

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