Today, financial scams have become common practice. Accounting information users majorly rely on financial statements to make investment decisions. Experts geeks can hack into company databases to collect their target audience.
Regular working professionals and families are contacted through these experts/scammers online or via digital phones to conduct small business loan scams.
Small Business loan scams have increased tremendously especially targeting small businesses. Cons can cover advance-fee scams, peer-to-peer lending scams, consultancy fee scams, ghost investor scams, funding kit scams, loan application scam, loan fraud or lender scams.
With most businesses dependent on digital data, digitally identifying people in need of business loans has increased.
Also Read: Business Loan Requirement & 5 Must Ask Questions Before You Apply for A Business Loan
What is Business Loan Fraud?
Business loan fraud occurs when individuals or organizations provide false or misleading information to lenders to obtain loans or credit under false pretenses. It involves deceptive practices designed to secure financing that the borrower is not entitled to, often with the intention to default or misuse the loan funds.
Types of Business Loan Fraud
| Type of Business Loan Fraud | Description |
|---|---|
| Misrepresentation of Financial Information | Borrowers falsify financial statements, tax returns, or income details to appear more creditworthy. |
| False Collateral or Asset Valuation | Fraudsters inflate the value of assets used as collateral, like real estate or equipment, to secure higher loans. |
| Identity Theft | Fraudsters use stolen or fake identities to apply for loans under false pretenses. |
| Phantom Businesses | Borrowers create fake businesses that do not exist or have no operational activity to secure loans. |
| Loan Stacking | Borrowers take multiple loans from different lenders without disclosing existing loans, leading to excessive debt. |
| Embezzlement of Loan Funds | Borrowers misuse loan funds for personal expenses instead of the intended business purpose. |
| Inflated Loan Applications | Borrowers apply for higher loan amounts than needed or qualified for by exaggerating business needs or projects. |
Ways to Avoid Business Loan Scams In India
Here are few tips to avoid Business loan scams in India.
1 No Loan Fee
Refuse to pay any loan fee charged right at the beginning of the process. If a person demands money in the initial steps of the loan process, 99% of it is a scammer loan and worth raising a red flag.
It is often termed as ‘application fee’, ‘processing fee’, etc. No reputed online lender will charge anything in advance until the loan gets approved.
2 Research Prospective Lenders
Any personal loan app used must be recognized by the Reserve Bank of India (RBI) and affiliated with a known bank. It should clearly state the details of the loan, including terms and conditions.
The lending professional or organization must also have a physical office address. Information about lenders must be obtained through an online search. Moreover, reviews and ratings can also help to identify suitable lenders.
Also Read: Factors to Consider When Evaluating a Business Loan Offer
3 Seek Expert Advisors
If you are unsure about the business loan, contact your network base for help. Contacting organisations such as SCORE or SBA help as they provide consultation free of cost.
They also offer tutorials on how to avoid business scams. Experts can keenly spot a doge over a loop as they know all verifiable requirements.
4 Avoid Random Source Links
Make sure you verify the identity of the sender, even if the email or message looks official. The sender’s email must end in @sba.gov. Keep your business safe from phishing attacks and invest in security software and fortify digital security.
Also Read: Need Money Fast? 4 Options For Small Business Owners
5 Be Cautious of Speed Sell and Phishing Attacks
When it comes to business funding, you should not jump into anything speedily. Fake lenders can rush you through the process to secure a business loan without giving time to understand its terms and conditions.
Seek to speak and meet with loan representatives directly rather than communicating through a bot or live chat. It will help to understand terms and conditions clearly.
Most phishing attacks manage to replicate the logos of government organisations. If you apply for a business loan and the email correspondence asks for personal information, remember to check the application reference number and conduct a proper verification.
Also Read: 5 Best And Fast Small-Business Loans
6 Refrain From Sharing Personal Or Financial Information
Security scams and financial scandals have manipulated large amounts of money, bloated stock markets, and the Sensex. Phone messages or emails are not legit ways of sharing personal information.
Often, agents ask for bank or card details over the phone; it must be red-flagged immediately. Asking for confidential, personal information over a phone conversation is a standard route of a business/MSME loan scams
7 Identify The Greed
One thing that the victims will often have in common with the perpetrators of the scams is greed. Scam merchants will offer something that appears to be of great value (or even free) to the victim’s company. Perpetrators will often offer something to the victim (thank you for your first order).
People accepting messages without obtaining further information and/or a second opinion invite scam merchants into their lives. During telephonic conversations, it is easy to identify the lender’s greed by asking as many questions as possible.
Also Read: Factors That Affect The Eligibility For Small Business Loans
8 Don’t Pay Money Immediately
Paying money before the application is approved most certainly can be a scam. Even if an amount is to be paid before loan approval, immediately get into a contractual agreement. The process should take time and should not be conducted in a hurry.
9 Peer-To-Peer Lending Caution
Peer-to-peer (P2P) lending enables individuals or businesses to secure loans directly from others, eliminating the need for traditional banks or financial institutions.
This alternative lending method has gained popularity, especially among those with poor credit seeking loans that might be challenging to obtain through traditional channels. P2P lending platforms, when reputable and regulated, can offer faster loan processing and potentially better interest rates.
While legitimate and trustworthy P2P lending sites exist, it’s crucial to exercise caution when exploring options. Platforms like Craigslist, Facebook Marketplace, Instagram, or Reddit may not provide the secure environment needed for financial transactions.
If you come across a business loan offer on Craigslist, it’s advisable to steer clear. When considering a P2P loan, opt for well-known and regulated websites to ensure a safer borrowing experience.
Avoid relying on social media for securing business loans, as P2P scammers often exploit these platforms. These fraudsters may request upfront payments and personal information, putting you at risk. Stay vigilant to safeguard both yourself and your assets during any P2P lending interactions.
10 Identify Fraud Markers
Fraudsters can be identified by observing certain personality traits. The following are some essential points to detect scammers:
- Pressure to act immediately.
- Provide no proper physical address.
- No secure website.
- Reluctance to disclose fees.
- Grant no sanction letter.
- Conduct improper formalities during the entire process.
Also Read: Reasons Indian Businesses Faces Rejection for Small Business Loans
11 Credit Verification
Typically, before approving a business loan application, there is always a history or background check. The lender checks the credit history of the borrower to determine the interest rate.
If the lender does not perform this, it could be a scam. Financial institutions also are very particular about offering personal or business loans.
Phone numbers play a crucial role in many of today’s fraud operations. Scammers can mask their identity with fake names, contact details, bogus company websites, and VoIP services using various free online tools.
When these false firms or identities are linked to a phone number, they can appear more authentic, allowing for a speedier, more intimate interaction with the victims.
If you still become a victim of a business fraudulent loans scam, there is no need to panic or worry. Visit the nearest police station to report the case and provide all necessary information.
It is worthwhile to also inform your bank about the same and get your accounts blocked if needed. Report fraud or mismanagement of federal funds by contacting the SBA OIG hotline.
What to do if you suspect a scam?
| Cease Communication: Cut off all contact with the suspected scammer immediately. This prevents them from extracting further information or manipulating you into additional transactions. |
| Document Everything: Keep a meticulous record of all interactions related to the scam. Save emails, text messages, or any transaction details. These records serve as crucial evidence for authorities to investigate and prosecute the fraudster. |
| Contact Your Financial Institution: Inform your bank or financial institution about the unauthorized transactions. They can help you halt any further payments and possibly reverse the transactions. Time is of the essence here, so don’t delay reaching out to them. |
| Report to Authorities: Report the incident to your local law enforcement agency and relevant consumer protection bodies. Visit your nearest police station in person to provide any sensitive information securely, such as bank statements or evidence of the scam. Request a copy of the report for your records, as it may be needed by your bank or insurance agencies. |
| Stay Updated: Keep yourself informed about any developments related to your case. Respond promptly to any requests for additional information from law enforcement or financial institutions. Staying vigilant ensures that no further action is required from your end. |
Steps to Report a Fraudulent Loan Application in India
- Report to the RBI: The Reserve Bank of India has a complaint management system that helps investigate fraudulent activities.
- Visit the RBI’s grievance redressal page for more information on how to file a complaint.
- File a Police Complaint:
- Report the fraud to the local police station under cybercrime.
- Use the Cyber Crime Reporting Portal (https://cybercrime.gov.in) to file a complaint.
- Report to the National Consumer Helpline (NCH):
- Call the NCH toll-free number: 1800-11-4000 or 14404.
- You can also visit the Consumer Helpline website to file complaints.
FAQ
Are loan given by Indifi is fake or Real?
We at Indifi is providing business loan to MSMEs SMEs and Startups after checking few criteria. our process of loan disbursal is totally transparent. Know more about Indifi.
What are online loan scams?
Online loan scams involve fraudulent individuals or lender fraud that offer loans through websites, apps, or messages, but their main goal is to steal personal information or money from unsuspecting borrowers.
How can I identify an online loan scam?
Common signs of online loan scams include:-
- Unreasonably high loan approval rates (e.g., “Guaranteed approval”).
- Requests for upfront fees or payments before loan disbursal.
- Lack of transparency or unclear terms and conditions.
- Poor or unprofessional website design and contact information.
- Unsolicited loan offers via email, text, or social media.
How to check business loan fake in India?
- Verify Lender’s Credentials: Ensure the lender is registered with the Reserve Bank of India (RBI) or other recognized financial authorities.
- Check for Transparency: Legitimate lenders will provide clear loan terms, including interest rates, processing fees, and repayment schedules.
- Avoid Upfront Payments: Genuine lenders do not ask for upfront fees or charges before approving a loan.
- Review Contact Information: Check for proper contact details like a valid phone number or email. Scams often lack clear contact info.
- Look for Secure Websites: Make sure the loan application website uses HTTPS and has secure payment gateways.
- Read Reviews: Check customer reviews and feedback to see if there are complaints about fraud or suspicious activities.