Not that business financing scams are anything new, but the scammers are getting more and more creative with their approaches.
Document forgeries are harder to detect, pitchmen are becoming more polished, and the story lines the draw you in are more convincing.
But regardless of the approach, the same basic tenant always applies… You are being offered something that sounds too good to be true and most likely is.
Scammers tend to pray on people that have reached higher levels of desperation in their search for capital and and can easily lure people in with the promise to provide what no one else is prepared to, for lower cost, and less strings attached.
Here are some early warning signs to a potential scam that you can watch out for.
First, you’re asked to provide an upfront fee of some kind to give you access to the source. Many times, this is an attempt to test out the mark’s level of desperation and amount of available resources. Soon after the first payment is made, there will be other requests for money.
Second, the front man cannot disclose the source of the financing and provides some elaborate story as to why the lender or investor need to remain anonymous.
Third, when asked for references from projects already funded, there will none be forth coming.
Fourth, the financing source talks about liking your project for its humanitarian, health, green energy, or other popular subjects that attempt to create greater credibility or social proof of the authenticity of the financing souce.
Fifth, 100% of the required financing is being offered up for the project with very reasonable or even no repayment terms applicable. In the world of business financing, there is rarely such a thing as 100% financing, or at least not for anything that wants to have a solid chance of success. If the borrowers or business owners don’t have something significant at risk, the motivation is not going to exist to work through any major problems or challenges that can arise.
100% financing can definitely fall into the too good to be true category, especially if there are several other unknowns or mysterious aspects to grapple with.
Sixth, the financing source creates a structure that they claim is for tax planning purposes, or tax avoidance purposes. This can involve other tax jurisdictions, other legal jurisdictions, and so on. The path can be very convoluted and even if you have a high priced law firm review everything, there can still be a trap door hidden in the mix that can suddenly open up and cost you money.
Seventh, you are asked to raise money to support the tax scheme and that there will be no risk exposure to anyone that puts up capital but a promise of a solid return on investment.
This list could truly be endless, but the above is a taste of what to look for.
The key is to not let desperation get in the way of common sense.