As a small business owner, I often receive emails or chased by ads about online loans. They are tempting, I admit. Loans are a reality of doing business.
I have taken on loans to be able to pay my employees. There was a time or two when I had to get a loan to pay my contractors. All these times, I did it with great reluctance and fear. And these are the same things that are preventing me from going crazy and taking on more debts,
At some point, a business owner will have to get a loan to keep your cash flow going. Through innovations like fintech, online banks and lending companies have sprouted like mushrooms after a thunderstorm.
Businesses have more financing options when a gap forms between bills and collections. Online lenders can quickly plug in holes in our finances until that payment from a customer comes in.
But the online world is also filled with online scammers. Online scams swindle money from people by posing as legit institutions or transactions. Scammers exploit the speed, accessibility, and anonymity afforded by the Internet.
Those who are looking for loans to tide them over are particularly vulnerable to these cybercriminals. Even those who don’t particularly have loans on their mind can fall victim because of tempting offers these criminals use as bait.
You have to know how to spot these fakes. Let’s not be blinded by false promises and keep a few pointers in mind. Loans can be helpful but very bad if you fall to any of these scams:
1. Upfront fees or collateral.
If an online lender charges you advanced fees, processing fees, service fees, and any other costs before actually getting the loan, run. You’ll never get that loan even if you pay their high advanced fees.
Scammers who use this method go for quantity rather than quality. They charge upfront fees with no intention of actually giving you a loan.
People are enticed by promises and marketing slogans that are too good to be true. Headlines like “no interest, pre-approved, quick cash, etc.” always reel in the unaware or just plain desperate.
Another bad thing about this scam is that some legit businesses use this to generate more income. They squeeze every drop of money that they can get from their clients.
They market to subprime, which is another way to say unqualified, people who are going to get disapproved anyway. They do this to thousands of people and they have a steady stream of income.
Don’t be lured in when the scammers say you can get your money back if you don’t get approved. They will make sure that you go through as many hoops as possible to make you give up.
The hassle is way too much for the money you want to get back. That is if you have a way of contacting them. Most of the scammers will make themselves scarce soon after they get your money.
Legit online lenders earn from the loans they give. They can charge you service fees but only after they give you the loan. Any client costs should be deducted from the amount they will transfer into your account. This is also explained to you in detail or clearly written in an online form.
2. No physical address.
All businesses must have an address. Regulators require financial firms to have a place of business.
Online lenders and virtual banks, even if they don’t have branches, conduct business at a central location.
If you check an online lender’s website and they don’t have an office address with a phone number you can call, then you better stay away.
Even if you do see an office address with full details, you should try to call or Google the address.
That’s a red flag if the line does not exist, wrong number, disconnected, or always busy. A good business should always be reachable to its customers.
Even if they are a legit entity, not being there when you need someone to talk to is cause for concern. Who are you going to talk to if you have issues or concerns with your loan?
A lending company that uses a PO box as an office address is also a red flag. Government regulators such as SEC or central banks require businesses in the financial sector to have actual offices and street addresses. If your online lender says otherwise, don’t risk it. You have a lot of options out there.
For scammers, the reason is obvious. They don’t want to be around when the police arrive.
3. Unregistered lender
Get in touch with the Securities and Exchange Commission or similar government regulatory body to find out if the online lender is registered.
Government sites and other websites have an online searchable database of registered businesses. Scammers won’t be bothered to pay the processing fees and capital. That’s how greedy they are.
Cybercriminals are terribly allergic to paper trails. And a SEC registration leaves a lot of crumbs behind to follow. Paper trails are a mortal sin to scammers. They always use fake names and addresses to throw off suspicion. It is easy to do this in the cyber world. Real-world papers are a no-no to criminals.
As a rule of thumb, just don’t deal with any company or person operating without any official registrations papers.
4. No credit check loans
A major red flag, indeed. Don’t take the bait. It’s too good to be true, just like how all scams work. They won’t bother investigating your credit but there’s a catch.
Scammers try to get your money by approving you and then get you saddled with high interest. They will also ask for collateral like your car or property which they can repossess when you default.
Giving a loan out is a risk. Lenders want to make sure that you can pay with interest. They will research, review, and assess your credit ratings.
Only people with good credit ratings should get approved for loans. These are folks who only need the loan for the short term, just a stop-gap measure. They know where the money is coming from and know how to manage their debts.
Sadly, most of the people who fall into a debt trap are people who don’t qualify for loans in the first place. They get into debt to pay for debt, spiraling into an ever-deepening debt trap.
Scammers know how to exploit desperate people who refuse to see the danger signs that litter the road to ruin.
5 .Emails from nowhere. Phishing.
Phishing is one of the oldest tricks of digital thieves. It is also probably the most or one of the most effective scams. There is no shortage of information about phishing and its variations but people still get sucked in.
Banks will never ask their client for sensitive information through email. It’s very suspicious if you get an email saying that you’ve been approved for a loan when you didn’t apply for anything in the first place.
If it so happened that you applied for a loan, just double check if the email came from the same company. Never open emails from unknown sources and certainly never click their attachments.
These are called phishing scams. The goal is for you to unknowingly download a virus into your computer. This virus or trojan will allow the hackers to search your files for passwords, credit card information, and other vital details that you use in financial transactions.
Hackers can also record your keyboard strikes. You log into your online bank without any suspicions that cybercriminals are recording your details including account number and passwords. Next time you log in, you find your account missing a few zeros or zero as in empty.
Hackers disguise their emails to make them look legit. You will see logos, letterheads, and addresses of reputable financial institutions. But these are fake emails. If you click on the link, which you should never do, they take you to a website where you are asked to fill in form fields with sensitive personal information.
Hackers use this info to hack into your bank account. Check the URL of the website. Make sure there are no funny characters. Better yet, go to the website through a search engine and not through the link provided in the email.
Okay, this may not be tied to loans but it pays to know. Sometimes the emails weave an outrageous tale of money in escrow which needs to be transferred from some African country.
You get a certain commission if they can transfer these millions into your bank account. But to do that you need to send money in return to process certain documents and other tricks to keep you forking over the money. They get people to do this until the victims are so committed to turn back.
Many people still fall victim to this age-old scam but it is very easy to spot. The emails usually come from free email services such as Gmail or Hotmail.
A reputable lending firm will use its domain name in their emails. There are also a lot of bad English or grammatical mistakes. You can guess that these criminals are non-native English speakers. Quickly block or send these types of emails to your junk folder.
Business owners should regularly reinforce best practices in online security to their employees. Employees are the last line of defense when it comes to cybersecurity.
You can easily check out a company’s reputation with just a few online clicks. Search the news for any red flags such as scandals, lawsuits, customer complaints, and government actions.
Scammers will usually not bother to set up social media pages but check anyway. Look for Facebook groups about customer rights protection, and ask around for feedback about the company you are interested in.
Conclusion
Loans can be very helpful for a small business owner to keep the cash flow open. There are a lot of online options provided in the fintech world. You have to be smart and careful about taking out loans. Make sure you are dealing with reputable companies. Better yet, make sure that you do need the loan in the first place.