How to verify a loan company’s legitimacy & avoid scams

Business owners often need money to start or grow their business. But startups, very small businesses, business owners with bad credit, and those with cash flow problems often have trouble finding funding. 

Scammers capitalize on these dreams or desperation of entrepreneurs, and steal money that could be invested into the business. 

“With the broad adoption of AI, in addition to business email compromise, unsuspecting employees are wiring millions of dollars to criminals based upon deepfake audio (phone calls) and deep fake videos,” warns Adam Levin, co-host of What the Hack with Adam Levin podcast.

Getting scammed is awful, no matter who falls victim. But it can be uniquely devastating for small business owners, as business loans and payment methods don’t always carry the same protections as consumer loans or payment methods, leaving them with little or no recourse. 

Top loan scams: how to spot them

As a small business owner, you need to be aware of common loan scams. Scammers often target business owners who may need money quickly, or who are having trouble qualifying for a loan.  Here are the main types of loan scams to watch out for:

Advance fee scams

These scammers promise you a loan but ask for money upfront. They might call it:

• “Insurance” for the loan
• “Good faith” payments
• Processing or application fees

With these offers, scammers often want payment through gift cards or prepaid cards, often asking you to mail the card or read the information over the phone. They may tell you to use payment services like Venmo, Zelle, Western Union, or Revolut to get paid quickly. 

Phishing scams

In these scams, someone tries to steal your sensitive information. They pretend to offer a loan to get details like:

• Social Security number
• Bank account information
• Credit card numbers

Then they can use that information to open new accounts in your name, or steal money from your existing accounts. As the Federal Trade Commission warns, “these thieves can take out loans or obtain credit cards and even driver’s licenses in your name. They can do damage to your financial history and personal reputation that can take years to unravel.”

Grant scams

Business owners often look for small business grants, which unlike a loan, offer money that does not have to be repaid. Scammers may capitalize on the appeal of “free money” and claim you’ve been awarded a grant, often for thousands of dollars. They say you need to pay a small fee to receive it. In reality, there’s no grant, and you lose your money.

The US Federal Government does not award grants to start a business, and will never reach out directly to business owners asking for money from someone who has not applied for a government grant. And while a business may hire a professional grant writer to apply for specific grants, you do not need to pay to apply for government grants. 

Learn more about how to get legitimate small business grants here. 

Fraudulent loan brokers

These scammers pose as loan brokers. (They may impersonate legitimate lenders or brokers.)  They charge upfront fees to “find” you a loan. After taking your money, they either disappear or keep asking for more fees without ever securing a real loan.

Fake loan apps

Fake loan apps are designed to gather personal information and scam individuals looking for loans. When discovered, these apps may be taken from app stores, but the scammers may try to create a new version. That means you must always be very careful about apps you download the permissions you give them. 

TrendMicro has written about fake loan apps and included a list of some of them. But just because a suspicious loan app doesn’t appear on one of these lists, that doesn’t mean it’s legitimate. Be careful.

Step-by-step guide to verify loan companies

It is understandable that someone who is desperate for funding may grab at any chance to get funding. But it’s that desperation that scammers prey on.

Step back and do some research first. Just the fact that you take the time to do that may buy you the space you need to avoid being ripped off. 

1. Go directly to their website

Before you do business with an online lender, do an internet search for the company name. (Tip: Try the “news” tab in google to see if the company has been mentioned in news articles.)

Don’t assume a professional-looking website alone means it is legitimate. If the company reached out to you (versus you reaching out to them), you could be talking to a scammer who is impersonating a legitimate company.

So always go directly to the website of the company in question and contact them through customer support to find out if they cold call customers or prospects. 

You can look up the domain name registration to see when a website was registered. This may help you spot a site that is brand new and may have been created for unscrupulous purposes. 

Most importantly, before you enter any information on an online lender’s website, check for a padlock in the URL to make sure the site is secure. You can then click on the padlock to see if the security certificate is up to date. 

Pro tip: Never enter personal information or sensitive business information on a website that is not secure! 

2. Look for signs of phishing

If you were approached by email, keep in mind that emails can look legit even when they are not. 

First, look for misspelled words, either in the email or in the email address. 

Next, hover over the email address to see if it’s as represented. The email could use the name of a legitimate bank or lender, but If the email address ends in a generic domain (like @hotmail or @gmail.com) you are very likely dealing with a scammer.

Here’s helpful information on how to tell if an email is suspicious.

3. Research the business location

Look under the website contact information for a physical address, then look that address up on google maps. 

You may be surprised how many of these searches result in a residential home address or a business that has nothing to do with lending! 

If the only address provided is a P.O Box, you may need to do additional research to verify the company is legitimate. 

You can also do a reverse search on the phone number calling you on the internet, though be careful about providing personal information to sites that provide these searches.

4. Check with agencies like the Better Business Bureau

Even if the loan company has an online presence, that doesn’t necessarily mean that its operations aren’t predatory. Check the Better Business Bureau website to learn more about the company. In some cases, you’ll also be able to read customer reviews, which can give you a better idea of what to expect. 

The free BBB ScamTracker database you can use to research potential scams. Not every company or scam will be listed, but it’s worth checking. 

Trustpilot is another option for checking online reviews, but smaller companies are less likely to have reviews there. 

5. Check with regulators

The Consumer Financial Protection Bureau publishes a database of complaints they have received from consumers about financial services companies. You can also access the FTC’s Consumer Sentinel Network data about consumer protection topics like fraud and identity theft.

Check to see if the company has complaints filed against it. Although these databases are designed to capture complaints from consumers, small business owners may have filed complaints as individuals. 

It can also be helpful to contact your state’s attorney general office or the state attorney general’s office in the state where the business is located. 

Lenders and loan brokers are often required by law to register with state agencies before they can do business there. Start by contacting your state attorney general; they should be able to tell you which office regulates lenders and/or loan brokers. 

Just remember: you need to make sure you’re not dealing with someone trying to impersonate a legitimate company.

5. Don’t succumb to pressure

Lenders want your business, but they shouldn’t be desperate for it. Getting a loan shouldn’t be like trying to snag tickets to Taylor Swift’s ERA tour.

If you feel like the person you’re dealing with is overly aggressive or manipulative, it might be a sign that they’re trying to fluster you and make you feel like you need to make a decision before you get all the facts.

If you feel uncomfortable about the process at any time, take a step back and consider why you feel that way and whether you should continue.

When you’re desperate for a loan, it can be difficult to pass up what may feel like your only opportunity to get one. But if you’re feeling uncomfortable, it may be because you know something isn’t right. Take time to do some research, especially if you risk losing money in the transaction.

Real-world examples of loan scams

Here are a couple of examples of business owners who went public with their scam stories:

• A Raleigh NC business owner was bilked for $11,500 after being told he would be arrested for PPP loan fraud. (The Paycheck Protection Program loan program provided loans during the pandemic that did not need to be repaid. It was also abused by crooks who made fraudulent loan requests.)
• A Southern Maine business owner saw thieves drain her business bank account after she fell victim to an imposter scam. The caller pretended to be with her bank—a large, national bank—and tricked her into divulging details that allowed them to withdraw money from her account. 
• A business owner trying to borrow money for a deposit for a building he wanted to purchase lost $1200 to a loan scammer, according to a complaint filed on the Better Business Bureau website.

In each case, business owners felt pressure to respond quickly to urgent messages. They put aside caution and ignore warning signs that they could be dealing with crooks. 

What are the red flags of loan fraud?

By now, you should have some idea of what to watch out for in a potential loan scam, but let’s go over the red flags again so you can take steps to protect yourself. 

Pressure for upfront payments

One of the most common warning signs is a request for upfront payment. Legitimate lenders typically don’t ask for money before you receive your loan funds. 

While some loans may have legitimate fees, including origination fees or document preparation fees, these are usually deducted from your loan disbursement, not paid before you get any funding. Be especially wary if a lender insists on payment through hard-to-trace methods like wire transfers, gift cards, or prepaid cards.

Requests for sensitive information

Another red flag is unsecured websites requesting personal information. Legitimate loan applications may require sensitive data like your Social Security Number or Employer Identification Number for credit checks. However, it’s essential to ensure you’re dealing with a reputable company and using a secure website before providing this information. Look for the padlock icon in your browser’s address bar and verify the lender’s authenticity through independent research.

Suspicious bank account information requests

Some online lenders may request access to your bank account information to verify revenues or facilitate the deposit of funds. While this isn’t necessarily a scam, it’s crucial to ensure you’re dealing with a legitimate lender. Reputable companies use secure third-party services like MX, Plaid, Finicity for this purpose. These services help them view account information but not withdraw funds from the account. 

No credit check loans

Promises of loan approval regardless of credit history should also raise suspicion. Most legitimate lenders have basic creditworthiness requirements. While some financing options exist for business owners with poor credit, these typically come with higher costs. Be cautious of lenders offering excellent terms to new or struggling businesses without considering personal and/or business credit scores, revenue, or time in business.

Promises of a second chance

Be wary of lenders who guarantee funding when others have turned you down. Most small business lenders look for at least two of the following qualifications in business loan applications: 

1. Credit: Good business credit scores and/or good personal credit scores
2. Time in business: at least 1-2 years in business
3. Verifiable revenue of at least $5,000 to $10,000/month

If a lender promises easy approval without these standard requirements, be on guard and walk away if they demand payment before you get funding. 

Pressure to act fast

Lastly, pressure to act quickly is often a sign of a scam. Legitimate lenders understand that you need time to review loan terms and make an informed decision. If you feel rushed or pressured, take a step back and reassess the offer. 

If something seems off, trust your instincts and seek advice from a financial professional or trusted business advisor.

As the Better Business Bureau warns: 

“Companies that allegedly ‘guarantee’ loans without seeing your credit history are likely scams. These scammers charge upfront fees to lock in a loan. But once you hand over the payment, the ‘lender’ vanishes along with your promised money.”

Tools and resources for checking loan legitimacy

Take time to verify that the lender, financing company or broker is legitimate.

In the US, national banks and federal savings associations are chartered and regulated by the Office of the Comptroller of the Currency. You’ll find a list here. 

Stated chartered financial institutions will be registered through state licensing agencies. For example, the Michigan Department of Insurance and Financial Institutions’ Office of Banking oversees the safety and soundness of Michigan’s state-chartered banks, savings banks and Business and Industrial Development Companies (BIDCOs). 

Legitimate financial institutions and business credit card issuers won’t call non-customers, offer a loan and then request personal information. If you get a call from someone stating they are from a lender or credit card company, be very careful, especially if you aren’t a customer. 

Just tell whomever is calling that you’ll call the financial institution using contact information provided on their website. Then hang up and call the financial institution directly.

Pro tips to safeguard your business from loan scams

Here are some practical steps you can take to avoid falling victim to loan scams. 

Monitor your credit reports regularly

By keeping an eye on your personal and business credit, you can spot any unauthorized inquiries or accounts. Many reputable lenders will check your credit as part of the loan application process. If you see an inquiry from a company you don’t recognize, it could be a red flag.

Understand loan fees

Most legitimate lenders don’t charge large upfront fees. If they do charge fees, they’re typically deducted from your loan amount after approval. Be wary of any lender asking for payment before you receive your funds.

Learn to recognize phishing attempts

Scammers often use emails or text messages that appear to be from legitimate companies. They may ask you to click a link or provide sensitive information. 

Always, always verify the sender’s identity before responding or clicking any links. When in doubt, contact the company directly using their official website or phone number.

Be cautious with your business information

Legitimate lenders will need some details about your business, but be wary of requests for login credentials to your bank accounts or other sensitive systems. If a lender asks for this level of access, make sure it’s facilitated by a reputable provider. 

Don’t rush into a loan agreement

Scammers often create a false sense of urgency to pressure you into making quick decisions. Take your time to review all loan terms and conditions carefully. If a lender isn’t willing to give you time to consider the offer, it’s probably not a good deal.

Research unfamiliar lenders or brokers

Before applying for a loan, look up the lender’s reputation online. Check for reviews from other business owners and look for any complaints filed with consumer protection agencies.

Again, be especially careful if your business is in a vulnerable financial position. Scammers often target businesses that are struggling financially or have been denied loans elsewhere. If you’re in this situation, be extra cautious about offers that seem too good to be true.

Remember, it’s always better to take a little extra time to verify a lender’s legitimacy than to rush into a potentially fraudulent situation where you lose time and money that would be better spent on your business.

What to do if you’ve been scammed

Falling victim to a loan scam can be a stressful and financially damaging experience. If you suspect you’ve been scammed, it’s crucial to act quickly. Here’s what you should do:

First, contact your local law enforcement immediately. File a police report with as much detail as possible about the scam and the scammers. This creates an official record of the incident, which can be useful for further action. It may also help law enforcement if other people encounter the same problem. 

Next, report the scam to your state attorney general’s office. They may have resources to investigate financial fraud and may be able to help you recover lost funds. Even if you can’t get your money back, you help establish a record of the scam. 

File complaints with federal agencies. Both Consumer Financial Protection Bureau (CFPB) and/or the Federal Trade Commission (FTC) both have the ability to gather complaints about financial fraud. These agencies use complaint data to identify trends and take action against scammers.

Contact your bank or credit card company immediately if you shared any financial information with the scammers. Explain the situation and ask them to freeze your accounts or issue new cards to prevent further unauthorized transactions.

Monitor your credit reports closely in the weeks and months following the scam. You’re entitled to free weekly credit reports from the three major credit bureaus through AnnualCreditReport.com. Look for any suspicious activity or accounts you don’t recognize.

Consider placing a fraud alert on your credit reports. This free service makes it harder for someone to open new accounts in your name. You only need to contact one of the three major credit bureaus (Equifax, Experian, or TransUnion), and they’ll notify the other two.

If the scammers gained access to sensitive personal information like your Social Security number, you might want to consider a credit freeze. This makes it much harder for fraudsters to open new accounts in your name.

Document everything related to the scam. Keep copies of all correspondence, notes from phone calls, and any other relevant information. This documentation can be crucial if you need to take legal action or work with law enforcement.

Seek legal advice if you’ve lost a significant amount of money. A lawyer specializing in financial fraud may be able to help you explore options for recovery.

Lastly, share your experience with other business owners. By spreading awareness, you can help prevent others from falling victim to similar scams.

Remember, recovering from a loan scam can take time and effort, but you’re not alone. There are resources available to help you through this challenging situation. Stay vigilant and don’t hesitate to seek professional help if you need it.

The bottom line: loan scams

If you’re trying to get capital to grow your business, you want to make sure you’re dealing with a legitimate lender or financing company. It can save you from losing money and, potentially, your business.

Nav can help. With Nav you can check, manage and monitor both your personal credit and business credit, and view financial options from 160+ trusted loans and credit cards based on your business data.

Business loan company verification checklist

Use this checklist when researching potential lenders to help avoid business loan scams.

10 quick ways to verify loan companies

□ Search the company name + “reviews” or “complaints” 

□ Verify the company’s website uses “https://” and shows a padlock icon 

□ Check the Better Business Bureau (BBB) rating and reviews 

□ Look up the company’s physical address on Google Maps 

□ Verify state licensing on the official state regulatory website 

□ Confirm the company’s phone number matches official records 

□ Check that company emails come from a business domain, not @gmail.com 

□ Search for news articles about the company 

□ Verify the lender is registered with the appropriate state agencies 

□ Cross-reference company details with the Secretary of State’s business registry

Red flags checklist

Watch out for these warning signs:

□ Requests for upfront fees or payments 

□ Pressure to act immediately 

□ Guaranteed approval without credit checks 

□ Unsolicited loan offers 

□ Requests to wire money or send gift cards 

□ Non-secure website asking for personal information 

□ No physical business address 

□ Unusually low interest rates despite poor credit 

□ Request for bank login credentials 

□ Company unwilling to provide licensing information

Before sharing information, verify

□ Website security (https:// and valid certificate) 

□ Company’s legal registration status 

□ Physical location exists and is legitimate 

□ Clear fee structure and when fees are collected 

□ Written documentation of loan terms 

□ Lender’s privacy policy and data protection measures 

□ Company’s reputation through independent sources 

□ Professional email addresses and communication 

□ Legitimate third-party payment processors 

□ Clear explanation of the loan process

If something seems wrong

□ Stop communication immediately 

□ Document all interactions 

□ Report to local law enforcement 

□ File a complaint with:

• State Attorney General’s office
• Consumer Financial Protection Bureau (CFPB)
• Federal Trade Commission (FTC)
• Better Business Bureau (BBB) 

□ Alert your bank or credit card company 

□ Monitor your credit reports 

□ Consider placing a credit freeze

Keep this checklist handy when researching business loans. Remember: It’s better to take extra time to verify a loan company is legitimate than to fall victim to a scam.

Download and print this checklist for easy reference when researching potential lenders.

Frequently asked questions: business loan scam faqs

What do lenders require to get a business loan?

To get a loan or financing from a small business lender or financing company, your business will likely need to meet at least two of the following qualifications. 

1. Creditworthiness: Good to excellent personal credit scores and/or business credit scores often required, though not always.
2. Time in business: 2+ years in business is preferred by most lenders. Although some lenders are willing to work with businesses that have been around for six months or more.
3. Revenue: Lenders often have minimum income requirements and will require verification. Minimum monthly revenue of $10,000+ is common.  
4. Type of business: Lenders commonly have lists of industries they will or won’t lend into. Learn more about high risk industries here. 

If you don’t meet some of those requirements, you or your business will likely need to meet other qualifications or look for alternative financing. 

Some microlenders may be more flexible, for example. And certain types of low-risk businesses may be able to get startup funding, especially if the owner has strong personal credit. (A new veterinary practice, for example.) 

But generally, a business with bad credit, low or no revenues, and/or in an industry that is difficult to fund because it is considered risky, will likely have trouble getting funded. They could be vulnerable to scams. 

Where can I get a business loan if I don’t qualify?

If you are having trouble qualifying for a small business loan, there are legitimate resources that may be able to help:

SBA resource partners like SCORE or your Small Business Development Center provide free mentoring services to entrepreneurs. 

Your accounting professional can help you evaluate your business cash flow and financial situation.

Nav can help you understand your credit, as well as how lenders view your qualifications for a loan. Learn how to establish business credit, and leverage credit for financing, with Nav. 

Why am I getting so many business loan offers?

If you’re receiving multiple business loan offers, there are several reasons this might be happening. Many lenders purchase marketing lists of business owners from credit bureaus and business data companies. When you apply for a business credit card, register your business, or take certain actions that appear in public records, this can trigger an increase in loan offers.

Some lenders also track businesses through:

• New business registrations
• Changes in business credit scores
• Recent credit applications
• Public contract awards
• Business credit report inquiries
• Business directory listings

While some of these offers may be legitimate, an increase in loan offers can also attract scammers. Be especially careful if you’re receiving offers after:

• Recently starting your business
• Applying for business credit
• Experiencing financial difficulties
• Searching online for business loans

Remember: Legitimate lenders don’t typically don’t make unsolicited calls promising guaranteed loan approval. If you receive unexpected loan offers, always verify the lender’s legitimacy before sharing any personal or business information.

Is it risky to get a business loan?

Don’t let the warnings about scams scare you from getting the financing your small business needs. 

You can reduce the risk of business financing by having a clear plan for how you plan to use and repay the funds you borrow. 

Evaluate what you’ll use it for and how it will help your business grow or solve a specific problem. Calculate whether your business can handle payments, even during slower periods. 

Remember that regardless of how well your business performs, you’ll need to repay the loan according to the terms.

Key factors to consider before taking a business loan:

• How you’ll use the funds to improve your business
• Your current and projected cash flow
• The total cost of the loan, including interest and fees
• Your ability to make payments during slow seasons
• Whether the loan terms match your business needs

Working with reputable lenders helps you avoid predatory loans. These include traditional banks, credit unions, and established online lenders, or lending marketplaces that help match borrowers with funding options. They should provide clear terms, transparent fees, and answer your questions about the loan process.