Some would argue that there are more business financing scams out there these days than legitimate lenders or financing intermediaries. Especially with the rise of the internet, its pretty easy for a clever scam artist to put up a virtually untraceable presence that makes strong promises but doesn’t deliver against them.
The reason why there are so many business financing scams is because there are always lots of people trying to secure money for a new or existing business and when they can’t get anywhere with the more well known conventional sources, they start looking for other sources.
And what really makes the scams work is issuance of some sort of commitment for the money being requested. Of course in return for being able to move forward, the scammer is going to want an up front fee of some sort. This is where things become tricky for the business owner as up front work fees and commitment fees are also requested by legitimate lenders making it hard to tell who are the good guys and who are the bad guys.
If you’ve come across a source of financing or an intermediary who claims they can lead you to a source of financing, here are some things to consider before stroking a check for any type of fee.
First, Google anything and everything you can find about these guys and see what comes up. If there are negatives, ask them to explain what happened that caused the negative press to occur. If you can trace any negative press back to the source, give them a call as well to get both sides of the story. If nothing comes up when you search for information, that can be just as bad as negative information coming up.
Legitimate sources of financing and financial intermediaries should have a very public and verifiable presence on and off the web. If they don’t, then you’re really in a buyer beware type of situation.
Second, what type of third party or social proof can you get from others that have had some type of similar experience with the lender. It may be difficult to get customer references from the potential lender as client confidentiality needs to be maintained (which is also something a scammer can hide behind when not providing you with this type of info).
Third, go to the better business bureau, FTC, or any other regulated body to see if there is any evidence of the financier’s existence or proof of wrong doing.
Fourth, go through the process and documents that they provide to you very closely to see what holes may exist. If there are items that are unclear or inconsistent with the intent of the agreement, as them to change their documentation and see how they react. The goal is to get them off the basic script and see how they deal with your specific questions. Legitimate businesses go through this all the time, are used to the questions getting asked, and usually have fairly straightforward answers as to what they can or can’t do to change what has been provided to you.
Fifth, disengage your emotional involvement in the deal if you can and stick with logic and your gut instinct. If it sounds too good to be true, then it probably is. Remember that 90% of the time or higher, business financing is never easy or quick to get in place. If someone is saying that it is, they are likely trying to get a hold of your money.
Scammers will prey on the fact that you’re short on time, that you’ve been turned down by others, that you’re looking for someone to take a chance on you.
And even if you do all the above and more and feel confident that you’re working with a legitimate source of financing, there is still no guarantee that whatever money you pay out will result in the business financing you seek. All money paid out up front is a risk. If you can’t afford to lose the money being advanced, don’t pursue the proposal.