How To Protect Yourself Against Business Loan Scams

As businesses struggle to find their feet once again from the devastating after effects of the pandemic, bad actors are on the prowl to take advantage of this vulnerable situation and market volatility. In short, financial frauds are on the rise and the need of the hour is to protect your business from such scamsters.
 
In order to stop fraud, you need to spot one early. Although financial institutions have been issuing warnings to their customers, many people are still ignorant of how these scamsters work. Hence, in this blog, we take a deep dive into how scammers trick people into sharing sensitive information, how to spot the early signs of fraudulent behaviour and how to identify a genuine lender.

First, here is a look at the different kinds of business loan scams doing the rounds.

Types of Business Loan Scams

Loan moratorium scam: 
A number of financial institutions have announced a three-monthmoratorium as a relief measure for businesses that are severely hit by the crisis. Fraudsters have been quick to capitalise on the situation and dupe unsuspicious citizens. Posing as bank officials, scammers approach customers and ask for personal and financial information, citing reasons such as reactivation of account and linking the account to Aadhar card. These details, once obtained, are used to conduct fraudulent activities.

Immediate loan approval in exchange for a small fee:
Loan approvals can take time. And that is exactly where scammers strike. They know small business owners are desperate for loans and hence offer instant approval loans. Business owners are asked to fill application form, submit documents and make a payment to get the loan processed. The loan, of course, never arrives.

Guaranteed loan approvals with no eligibility criteria:
Small businesses often fail the eligibility criteria because of lack of collateral to pledge against a loan or a poor credit history. Such businesses become soft targets for scammers who offer easy loans without anyeligibility criteria or credit check, all in exchange for a fee. Once the money is paid, the fraudster disappears.

Online phishing scam:
These days, a number of financial institutions offer online loan application process, for the convenience of borrowers. Therefore, you might probably get emails about it from various lenders every day. That is exactly where scammers are striking. Emails are sent to customers asking them to fill up information online for a loan. Such emails look exactly like the ones you receive from legitimate financial institutions. Once you click on the link shared on the email, it takes you to a genuine-looking website with all proper information. The unsuspecting customer fills up a false application form,providing all personal details, and submits the same. The same details are then used to defraud the customer.  

Also Read:7 Ways To Safeguard Yourself While Using Online Banking

So, how do you tell a genuine offer from a fake one? Here are some red flags to watch out for if you’re dealing with an unknown company or person:

1. Asks you to pay a fee in exchange for a service: No RBI-authorized lender or financial institution will ask you to pay any additional fee. Of course, there are costs involved, but they are usually clubbed into the total cost of the loan. Even if there are charges, an authentic lender should disclose all associated charges upfront in writing.
 
2. Check and verify their contact details: 
If you get a call from a company you have never heard of, offering you a loan, be careful. When they call, just tell them you need time to discuss it with your family or business partner, take down all their details like name of the company website, contact details, and check the same online. Call on the given phone number and verify before you give away any of your personal details. More often than not, scammers won’t have a direct number

 3. Guarantee: 
If somebody offering you a loan, guarantees you money without even taking a look at your profile, you have a cause to be suspicious. No lender can give any guarantee as far as loan approval is concerned. 

4. Verbal communication: If they offer you a loan over the phone and ask you to verifycertain details as part of the approval process, be wary. No genuine lending company will offer you a loan and ask for your details verbally, without any written communication. If you’re approached by any such company, ask for a written communication before sharing any of your details. Most likely, you’ll never hear from them again.
 
5. Uses a generic email address: If a lender approaches you for a loan and emails you regarding the same, before you do anything else, check the email address. If the email ID used is a generic one like Gmail, Yahoo or others, it’s a red flag and something is off. 

6. Aggression:This is another possible sign that you are being scammed. Is the lender calling you frequently,trying to push you into a deal? Is he too aggressive while selling, using persuasive techniques like free offers, free coupons, discounts etc.? If yes, it is a scam and you should beaware.

Also Read: 5 Practices for a Safe Net Banking Experience