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In a recent study by the Better Business Bureau, 43% of small business owners confessed that they would likely be the target of a scam in the upcoming year. The same study also showed that business owners feel that the risk of a scam is higher today than it was three years ago. These facts are enough to make any business owner concerned about falling victim to a loan scam.

The reality is that many businesses, especially small ones, are looking for alternative forms of financing to help grow and expand. Often times this means applying for business loans online. While online business lending has opened up many doors for small business owners in Canada, fraudulent lenders do exist The silver lining is that there are ways to detect fraud and scams if you know who they target and what their typical characteristics are. Let’s explore these concepts further below.

Who Is Vulnerable To Business Loan Scams?

There are two main types of businesses that are more susceptible to scams: start-ups and businesses under high stress. Start-up businesses tend to be small and inexperienced which makes them more likely to fall for a scam. Even businesses that are past the start-up phase, but are still small, can be more vulnerable because they don’t have as many resources to combat scams. In addition, businesses that are in dire, stressful, or desperate situations aren’t usually thinking straight which makes them more vulnerable to loan scams. 

Home-based business vs. brick and mortar, which is right for you? Learn more here.

How Do Businesses Fall For Scams?

Scammers commit their crimes by using natural human reactions to their advantage. This enables them to exploit the business or individual thereby allowing them to steal money or gain the information they need. Natural human reactions scammers commonly exploit include:

  • Responding to authority 
  • Commitment and consistency
  • Keeping a promise 
  • Wanting to be liked
  • Following what others do
  • Returning the favour or reciprocity

Knowing what scammers use to commit their crimes is very helpful because it encourages you to think objectively, not emotionally, when doing business. 

Thinking about changing from a sole proprietorship to a corporation?

Most Common Business Loan Scams

The nature of the business and the individuals within it are one thing, but scammers also have their own antics. They tend to operate within certain niches because it’s easy to commit fraud and scams within them. The most popular business loan scams are: 

  • Agency imposter 
  • Tech support
  • Upfront payment scams
  • Intellectual property scams
  • Office supply
  • Bank and credit card company imposter 
  • Prepaid service scams
  • Advertising
  • CEO or executive impersonation 
  • Government impersonation
  • Fake check scams
  • Phishing scams

Businesses that work closely with these types of vendors or situations need to be particularly careful since the risk of a scam is higher.

Learn how to avoid these common business loan application mistakes. 

5 Signs You’re Being Scammed

Despite the high risk of scams in this day and age, there are ways to detect scams before they happen. More specifically, there are five signs to watch out for. Let’s explore these in-depth below. 

  • High Pressure to Commit. Scammers often put a lot of pressure on the business to commit as soon as possible because this would leave little time for people to realize something is awry. If a loan offer has a tight expiration date, that is a sign of a scam.
  • Lack of Presence in the Real World. Good business practice is to look for independent information on the lender you’re working with. If you can’t find a phone number, address, reviews or ratings during your research, you might be dealing with a scammer. 
  • Guaranteed Approval. It really is too good to be true. No matter who the lender is or what the loan is for, guaranteed approval is impossible because every lender will want to evaluate creditworthiness before sealing the deal. 
  • Unsolicited Financing Offers. In the world of financing, usually, borrowers are the ones to initiate the process, not lenders. If you receive an offer via phone, email or text, it’s probably a scam. Keep in mind that this goes hand in hand with guaranteed approval, free money is always too good to be true.
  • Requesting Bank Account Information or Access. Fraudulent lenders often blatantly ask for a borrower’s online banking information, such as their debit card number and password. This is not a normal business practice, but scammers often get away with it by using the disguise of “bank account verification” or something similar.

Interested in incorporating your business in Canada?  

How Do You Protect Your Business From Scam Artists?

Successful businesses put a lot of time and effort into their internal processes. Not only do these processes improve the efficiency and consistency of a business, but they can also help catch scams before they happen. Below are various ways you can protect your business from scam artists. 

  • Limit sensitive business information you post online
  • Invest in security systems, including but not limited to physical security, data backup, computer security, and network security
  • Train your staff (particularly the accounting department) and invest in your employees
  • Devise a clear procedure for handling invoice payments
  • Control sensitive business information within the business
  • Perform background checks and research on new vendors and clients

Learn how to safely and properly file your business tax return, click here.

What To Do When Scams Happen

Despite your knowledge of scams and efforts to prevent them, you might find yourself dealing with a scam one day. If this is you, it’s ideal if you can report the fraud to prevent it from happening again to someone else. Depending on the type of scam you’ve encountered, there are different governing bodies you can contact, all of which are listed below. 

Misleading or Incorrect Advertising

Competition Bureau 1-800-348-5358 

Canadian Anti-Fraud Centre 1-888-495-8501

Stolen Money

Contact local law enforcement

Contact your bank, financial institution and credit card issuer

Canadian Anti-Fraud Centre 1-888-495-8501

Identity Theft

Contact local law enforcement

Contact your bank, financial institution and credit card issuer

Contact Equifax and TransUnion to place a fraud alert on your credit reports

Canadian Anti-Fraud Centre 1-888-495-8501

Banking Information Theft

Contact local law enforcement

Contact your bank, financial institution and credit card issuer

Contact Equifax and TransUnion to place a fraud alert on your credit reports

Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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