6 Business Loan Scams That Are Completely Avoidable

Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith is Editor-in-Chief at Fundera. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
Meredith Wood

Over the last several years, the explosive growth of the online alternative lending industry has made it easier than ever for small business owners to access the funds they need to make their business goals a reality. Unfortunately, this also has meant an increase in business loan scams. 

Though legitimate and trustworthy online lenders like OnDeck, LendingClub, and Kabbage among others have been immensely valuable to small business owners—they aren’t the only ones using the internet to expand their reach.

Thieves and hackers running business loan scams threaten to take advantage of small business owners out to fund their dreams. These con artists will steal your money or personal information by pretending to be legitimate lenders or loan brokers.

But don’t worry. There are plenty of ways to spot these business loan scammers. Here are 5 common business loans scams and how to avoid them.

Common Business Loan Scams to Avoid


While small business owners have access to plenty of credible and beneficial opportunities for funding online, you do need to stay on guard for some of the less-than-honest, self-described “business lenders” or “loan brokers” whose only real goal is to take your money and run.

Before you sign any questionable contracts or send anyone your hard earned cash, make sure you’re aware of and on guard against these six common—and completely avoidable—business loans scams.

1. Advance Fee Scams

This is a very popular business loan scam. Get a business loan with almost zero interest—no matter your personal credit history, how long you’ve been in business, or whether you have any plan in place to make repayments! Have a bankruptcy on your credit history? It doesn’t matter! According to these supposed loan providers, anyone can qualify for a low-interest loan.

The only catch? There are a few fees they need you to pay up front. A processing fee, an application fee, some kind of premium service….

To put it bluntly, any loan situation that’s asking you to put money down upfront is a scam—plain and simple. You shouldn’t have to pay for a credit check, to hold the offer open, an application or underwriting fee, or any other upfront cost. Lenders who operate above board won’t ask you for a single cent until your loan has been funded. If you’re told otherwise, that’s a red flag that it’s time to move on.

2. Peer Lending Scams

Verified peer-to-peer lending platforms such as LendingClub, Upstart, or StreetShares have become an increasingly popular avenue for business loan funding. Unfortunately, though, these trustworthy P2P sites have been closely followed by other so-called “peer lenders” using less traditional platforms—think Craigslist or Facebook Messenger among others—to take advantage of unsuspecting business owners. This is a common business loan scam. 

The typical peer lending scam often looks very similar to the advance fee scam described above. The difference is that the solicitation comes from an individual offering a peer loan instead of from a phony business. These peer lenders will usually ask you for some kind of upfront payment to secure your loan—or to conduct a background check.

That means, along with taking your money, these supposed peer lenders could also be requesting sensitive personal data—such as your full name, date of birth, and Social Security number—to complete their phony background checks.

If you fall prey to a peer lending scam, be prepared for this supposed lender to take both your money and your identity to do with as they please. And once they have what they want, you’ll never hear from them again.

To avoid this scam, rely only on reputable peer lending platforms when considering any peer-to-peer borrowing opportunity. Never use a money wiring service like the Western Union for a business loan, and never offer payment up front for any reason.

3. Funding Kits

Some online loan providers would have you believe that obtaining a business loan is so complicated, you need to pay them to walk you through the process. Don’t buy it! This one of many business loan scams. In this case, scammers might be offering you inside tips or tricks to complete your business loan application, obtain special government grants, or qualify for some special low-interest loan product that only they can help you to access.

In reality, any and all information you could need in order to obtain a business loan is readily available online—and for free—from verified online lenders, loan brokers, or marketplaces like Fundera.

Have a specific question that you can’t find an answer to online? Any ethical lender or loan broker is more than happy to answer your questions free of charge, providing you whatever information you might need in order to make the right borrowing decision for your business.

Anyone asking you to pay for information on obtaining a business loan is simply taking advantage of your earnest search for information as a means to line their pocketbook.

4. Ghost Investors

While not technically a business loan scam, this is another con job waiting to hit anyone in the market for a business loan. In this scenario, you would typically be contacted out of the blue by an “agent” for a large foundation, financial fund, or even a wealthy angel investor who is supposedly interested in funding your business.

But first—of course—they need to make sure you qualify for this “amazing opportunity.”

What does that mean? They might need a background check, due diligence paperwork, or endless other forms of legal documentation and proceedings—all at your expense.

Not only is this scam taking your hard earned money for a supposed investment opportunity that will never come to pass—but these scammers are also gathering personal information about you and your business that can later be used for identity theft and other forms of fraud!

In the real world, strangers don’t show up out of the blue offering you free money. From the beginning this scam sounds too good to be true—and that’s because it is.

Go ahead and pass this opportunity right on by in favor of a funding situation that you know you can trust.

5. Business Credit Repair

Particularly if your business is just getting started, no reasonable lender expects you to have an extensive credit history. (That would be like asking to see the credit history for a newborn baby! It just doesn’t make sense.)

Even so, there are plenty of less-than-honest businesses out there who would be eager to convince you otherwise. They’ll make the pitch that you need help fixing your business credit in order to make it look like you have enough of a financial history to be eligible for a business loan. These services are a useless waste of time and money.

It’s important, though, that we don’t confuse this service with personal credit repair, which can be useful to borrowers in some circumstances. If your personal credit score is less than 650, you might have a harder time obtaining a business loan—or be limited to fewer options. In this case, a personal credit repair service might help you to clean up any erroneous claims on your credit report, identify and address any outstanding debt, and take other steps to clean up your personal credit history and improve your score.

That said, there are plenty of scammers in the personal credit repair industry as well—so do your research to make sure you’re working with an authorized business before you buy.

6. Swindling Loan Brokers

This all too common business loan scam looks very similar to the advance fee scam, with the exception that the phony business in question is not a lender but a broker promising to connect you with a reputable lender.

A loan broker’s role is to help you find the right loan product for your business, prepare the necessary paperwork for your application, and connect you with lenders who would be a good fit for your business needs.

While this is a lawful service available from verified loan brokers, the service becomes a scam anytime a loan broker is asking you to pay upfront for their services. Ethical loan brokering services work on a commission-based model in which the broker obtains a percentage of the total loan they help you to obtain—usually directly from the lender and at no cost to you.

Any loan broker who asks you to pay up front is at best charging you for a service that you should be able to get for free—and at worst planning to take your money and run.

Watch Out for These Signs of a Business Loan Scam

As you can see, there are a whole host of ways that well-meaning business owners can be duped by con artists just looking to make a buck. What we’ve highlighted above are the six most common business loan scams that we hear about—but these aren’t the only forms of business loan fraud that you might encounter. Every day, these criminals are coming up with new and creative ways to waste your time while stealing your money and your personal information.

To help you avoid these and other business loans scams, here are eight common warning signs to look out for when considering any business funding opportunity:

1. Unsolicited Contact

Cold calling isn’t a common method among credible small business lenders for connecting with new prospective borrowers. If you hear from someone out of the blue offering you a business loan and you’ve never initiated contact through an online form or any other method, consider that your first clue that something might be amiss.

2. Non-Traditional Advertising

Legitimate business lenders typically don’t advertise on Craigslist, personal Facebook messages, or yard signs on the side of the road. If you see marketing messages for a business loan that look out of place, it’s probably because they are—and the person sharing that advertising is up to no good. This is a good way to avoid business loan scams. 

3. Money Requested Up Front

We’ve said this before, but it’s worth reiterating. You should never—ever—give someone money up front for the purpose of a business loan. Not for a credit check. Not for a brokering service. Not for an application or processing fee.

There is no reason that you should ever be required to pay money in order to obtain money for your business. If any lender, loan broker, investor, or platform asks you for any form of upfront payment, end the relationship immediately and move on.

4. Lack of Physical Address

Even online lenders who connect with their customers exclusively over the internet have a registered physical address for their headquarter offices that you can easily research and identify. In fact, listing a physical address is a legal requirement for sanctioned lending institutions—so if you’re questioning the credibility of a loan opportunity, asking for the business’s physical address is a great way to investigate whether or not this is just another business loan scam. 

If your point of contact won’t offer a physical address, gives you only a P.O. Box number, or if the address they provide doesn’t seem to match the business they claim to operate—that might be further evidence that your instincts were correct.

5. Generic Email Address

Similarly, authorized lenders and loan brokers don’t use generic email addresses. If you’re receiving contact about a business loan from a Yahoo, Hotmail, or generic Gmail account, that’s a clear sign you’re being scammed.

Keep in mind, though, that the presence of a website or domain-associated email address doesn’t necessarily prove that a lender or a loan broker is the real deal. These days, anyone with modest technical skills can purchase a domain and set up a basic website that looks just like a real business.

6. “Guaranteed” Approval

Among credible business lenders, there’s no such thing as “guaranteed” approval for a business loan prior to a credit check and financial review. If you see advertising or receive unsolicited contact for a business loan that makes any mention of “guaranteed approval,” you have most definitely encountered a business loan scam.

7. High-Pressure Sales Tactics

Does the loan officer or broker you’re communicating with seem just a little bit too eager to sign the dotted line on your small business loan agreement? If you’re getting the slimy used-car salesman vibe, trust your instincts, take a pause, and research the validity of your business loan opportunity. This could be just another business loan scam. 

Credible or not, any loan representative who isn’t willing to give you a night to sleep on such an important decision isn’t someone you should be doing business with.

8. Terms Too Good to Be True

Simply put, does this funding opportunity just sound too good to be true? Is the interest rate dramatically lower than what you’ve seen elsewhere, or are you being offered funds outright before you’ve provided any information about financial history, your business plan, or how you intend to repay the loan?

Don’t fall into the trap of these business loan scams!

Our biggest piece of advice when considering whether a loan opportunity might be a scam? Trust your gut. And if in doubt, go a different direction. There are enough legitimate, verifiable online lenders out there for you to find the funding your business needs without wondering whether you’re about to be swindled.

As long as you have a solid business plan and are in a financial position where it makes reasonable sense for you to be taking out a loan, you have every opportunity to get what you need without becoming the victim of a fraud.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith is Editor-in-Chief at Fundera. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
Meredith Wood

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