What to do so you don’t fall victim to a business loan scam.
Business loans are essential for most businesses, but business lending is also a hotbed for scams. Scammers work from both inside and outside of Australia to separate business owners from their money by taking advantage of people who don’t know how the system works or what to expect.
Fortunately, you can stay safe by learning about what to look out for and some of the tricks used by scammers.
Think you've encountered a scammer?
If you have been scammed, it’s important to stop dealing with the lender or scammer immediately. You need to report the scam to ASIC and then file a report with the police. ASIC also recommends putting yourself on the Do Not Call register to reduce telemarketing calls, and calling the free financial counselling service on 1800 007 007 if you are experiencing money issues because of a scam. Find out more details of how to deal with a scam here.
Signs that you’re being scammed
There are a few red flags to look out for if you’re being scammed. If you encounter even one of these, it usually means your so-called lender wants to take your money, not give you some.
- Money upfront. There is never any reason to pay a loan broker upfront. It doesn’t matter what reason they give, be it administration fees, credit check costs, processing costs or anything else. A loan broker should only ever get paid by the lender, in commission, after the deal is done. Some lenders might have initiation fees or costs, but these are rarely a significant figure. They should never ask for a down payment or other significant upfront costs. If any loan officer or lender ever wants money upfront, you should be cautious.
- Unscrupulous credit repair. Any business credit repair service should be approached with caution. This is particularly true if you are approached by them, they offer the service unprompted or they tell you it's necessary to repair your credit before getting a business loan. Startups and many other small businesses aren’t expected to have a perfect credit score, and lenders will generally set more store by your business proposal and application rather than your score.
- No contact information. Do not ever go with any lender who doesn’t have a physical address or easily-found contact information. Even lenders who are solely online like Moula, Prospa and Kikka Capital have clear and easy-to-find contact details and office locations that indicate their legitimacy.
- Really, really good rates and terms. It’s sad to say, but if a deal looks too good to be true, then it probably is. Lenders are competing with each other and are constantly trying to offer better rates and loan conditions to attract more business, but they have limits as to what they can offer without losing money. If there’s one lender who seems to be offering a deal that exceeds other details by a long way, you may have cause to be suspicious.
- They “guarantee” acceptance, or anything else. No lender can guarantee that you will be approved for a loan. When a business offers customers a guarantee, that’s a binding promise they must deliver on. Without seeing your business application you shouldn’t trust any guaranteed loan.
- Generic email addresses. If a business lender is emailing you from a Gmail, Hotmail, Yahoo or other generic email account, then something is off and you should tread carefully. Lenders should be conducting all business with an official business email address.
- Unsolicited services and contact. If a “lender” offers you money unsolicited, it may be a sign of a scam. No lender will ever offer a loan with a cold call. Similarly, you should also be aware of services you don’t want and didn’t ask for, like business plan writing or credit repair. Although these are legitimate services in their own right, they are generally not offered without prompting and you should consider whether you actually need them.
- The wrong type of loan. If you have a pretty good idea of what type of business loan you need but the lender wants to push you towards another option, you need to be cautious. You might be being steered towards a product with higher rates or worse terms.
- A hard sell. Does your lender seem a bit too keen? Are they contacting you frequently, trying to rush you into a decision, offering free gifts or throwing around phrases like “limited time only” or “last chance”? Legitimate lenders make their money from offering sensible options that you can repay as planned. Scammers make their money by rushing people into bad decisions with big promises, and then running away with the money.
The wrong type of loan
There are a range of different types of business loans such as a merchant cash advance, equipment finance, startup loans and more. The wrong type of loan is one that’s just not right for your needs. For example, if you have the assets and the credit history for a secured loan but the lender says you should get an unsecured loan, or if you need to finance a startup for an extended period of time but the lender wants you to take out a short-term business loan, then they may be trying to cheat you, and you should walk away.
Online business loan scams to watch out for
Crooks are getting increasingly tech-savvy when it comes to taking advantage of the unwary. This lets them strike at Australians from outside the country and steal not only money but also valuable personal information. They may approach you by:
- Taking out ads on legitimate websites. Just because someone is advertising doesn’t mean they’re the real deal. Be suspicious of online ads for no doc loans, guaranteed approval or unrealistically good rates.
- Creating fake websites. Sometimes scammers will create their own imitation business website and then use this to “prove” that they’re real. They might send out links to it in emails and elsewhere. You must remember that having a slick and professional looking website doesn’t mean a company is legitimate.
- Cold-calls. Whether it’s through text messages, emails, phone calls or social media, beware of someone who keeps dangling a website address in front of you like a fishhook. Don’t click links you find in emails from unknown senders, in texts from unknown numbers, or from any stranger who contact you personally.
Once they have your attention, they’ll typically use a few tricks to keep it and create the illusion of legitimacy.
- They will sometimes offer an Australian Credit License number that’s real, but belongs to a different actual business.
- They might direct you to a website for their fake business.
- They may ask for your contact details or personal information to “run a credit check” or “verify your identify” when they in fact plan to sell it to the highest bidder or use it for identify theft purposes.
- They may pose as an international group or government agency with an official-sounding fake name like The International Securities Tax Commission. Check the list of fake regulators to make sure it’s not one of them.
How to tell the real from the fake
Separating the two is easy once you know how. Scammers can fake legitimacy in a few different ways, but there will always be signs to look out for. The trick is to make sure that everything adds up. You should know:
- The name of the company representative you’re speaking with and the name of the company itself
- The company’s Australian Financial Services License number
- The company’s public phone number
- The company’s physical address
Look for anything that doesn’t match.
- Check the license and make sure it matches the name of the company, the physical address and the phone number.
- Call the phone number to make sure it’s real and that you can reach the company with it.
- Match the physical address with the license number and phone number if possible.
- Search the company’s name online and look for any scam warnings, feedback or red flags like a mismatching address.
What to do if you have been scammed
If you are the victim of a scam, there are three things you need to do:
1. Recover your losses
Sadly, most scam victims never see their money again. This is because it’s usually very difficult to track the scammers down and in many cases they’re overseas where Australian authorities can’t reach them.
If you have sent money or information to a scammer, contact your bank immediately. Your bank can cancel any future transactions that may be in the works and close your account if you’ve sent the scammer any information that may have compromised it.
There are support services available for those who have been the victim of a scam:
- The Department of Human Services Financial Information Centre can give free, independent financial advice over the phone or in person.
- You can call the national debt helpline on 1300 007 007 if the scam has left you in debt.
- The emotional impact of being scammed should not be underestimated. Many people who have been taken advantage of report changed relationships with their friends and family, or have lost their entire savings and could use some support and guidance. Lifeline is an Australian crisis support centre and national charity with 24-hour crisis support and suicide prevention services. Call them on 13 11 14 or visit their website for mental and emotional assistance.
2. Report it
If you’ve encountered a scam lender, or any other fake financial services providers, you should report them to the Australian Securities and Investments Commission (ASIC).
- Report it to ASIC online. You will have to fill out a form detailing the events.
- If you’re not sure whether it was financial services or product fraud (or something else) you can report it to ScamWatch instead.
3. Avoid follow-up scams
Scammers will often strike the same place twice, three times or possibly more. You need to ensure that you don’t fall into any more traps or follow-up scams. Scammers might try some of the following schemes:
- Offering more money or more returns to help you recoup your losses
- Telling you to take out another loan so you can meet the repayments of the first
- Claiming they can recover your losses for a fee
- Asking you to pay for travel, accommodation or other costs so that they can “find the scammer” or “get your money back”
Scammers will always want more money and if they think they can get it from you, they won’t hesitate. Because it’s very rare for anyone to see their money again once it’s been lost to a scammer, you’re much better off being proactive about protection by following this guide and only dealing with reputable, verified and well-known lenders, the big banks or other established institutions.