Credit Basics for Small Businesses

Beware of Funding Scams
The one thing you do not want to do if you’ve been denied credit is succumb to a financing deal that sounds "too good to be true." It’s a sad fact that Better Business Bureaus hear from people each day who have lost money trying to secure funds to launch or operate their businesses. One pitch in particular that seems to appeal to unsuspecting business owners is advance fee loans.

Advance fee loans.
The scenario goes something like this. An advertisement appears in the community newspaper, on the Internet or in an e-mail suggesting “Money to lend, debt consolidation, personal car and small business loans for people who have good/bad credit and past bankruptcies. Call Toll-Free Now!” Once you call the phone number, you are sent forms asking you to submit personal information, including copies of your driver’s licenses, employment records, Social Security number, bank account information and credit card numbers. A few hours or days later a friendly telephone caller responds with the good news. Your business loan has been approved, but an “insurance fee,” “processing fee” or three months’ advance payment is needed before the loan is released and the check delivered. You’ll be asked to pay the fee immediately through electronic transfer of the money. The money is picked up by the “loan” broker, but the promised loan never arrives and the up-front fee paid by the victim (which can total several thousand dollars) is lost forever.

The BBB advises business owners and operators who are in need of extra cash to thoroughly investigate all advertised offers of “easy credit” or “easy loans” from unfamiliar loan brokers, particularly those originating out-of-state or out-of-country.

BBB experience indicates that the following are signs of advance fee loan fraud:

• Pressure to act immediately. Advance fee loan schemers will try to get you to send money or give out personal information (credit card number, bank account information and Social Security number) before you get any paperwork. Insist on receiving the necessary paperwork before deciding whether to apply for credit.
• Will not provide location information. If the loan broker hesitates to tell you their physical location, beware that this is a common ploy to avoid law enforcement detection. Refuse to do business with the broker until you have their physical address or location and can check them out with the BBB.
• Claims that a loan is “guaranteed.” Legitimate lenders do not “guarantee” you will be granted a loan before you even apply, especially if you have bad credit, no credit or a history of bankruptcy.
• Request for immediate payment of an advance fee, while refusing to provide any details in writing. If you do not have the offer in hand—or confirmed in writing—and you are asked to pay, do not do it. It is fraud and it is against the law.
  
  

If you think you have been a victim of an advance fee loan, contact your Better Business Bureau (www.bbb.org) or state Attorney General (www.naag.org).

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