Avoid Getting Scammed!
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When personal finances are not enough to fund a start-up, entrepreneurs must often rely on many other sources to finance their venture. The following are 5 of the most common sources for funding a new business:

  1. Family and friends
  2. Bank loans
  3. SBA loans
  4. Venture capital
  5. Angel funding

If, by some chance, entrepreneurs are not successful with obtaining financial assistance from the above sources, they may be tempted to borrow money elsewhere.  According to the Better Business Bureau (BBB), consumers across the U.S. and Canada are losing substantial sums of money by responding to TV, newspaper, or web site advertisements that “guarantee” loans to people with a poor line of credit.

Here is how the scam works. The consumer is immediately enticed by an advertisement seen in a local newspaper, web site, commercial, etc., and calls a toll-free phone number that is provided in the listing. A loan official will either take their credit application over the phone or directly send the consumer paperwork to complete. Either way, the consumer is asked to provide/submit information regarding their driver’s license, employment records, social security number, bank account, and credit cards, etc. A few hours or days later, they are informed of the good news—that they have been approved for a loan (from $5,000 to $100,000), and will receive their money upon payment of a mandatory fee.

This mandatory “fee” is allegedly needed immediately in order to cover the first loan payment or for “security and/or insurance” purposes. Some financial scammers call it a “premium fee” or a “processing fee,” while others may label it as a “finder’s fee.” The scammer may even request up to 3 months advance payment before the loan can be released and delivered. The loan applicant is then instructed to send the money through electronic transfer or by money order. Once the money is picked up by the scammer or scamming partners, the consumer never receives their loan. In addition to never recovering their financial loss, the victim is also at high-risk for having their identity stolen if they provided vital information such as their social security or bank account number to the con artist(s).

Advance fee schemers commonly use a U.S. address (a P.O. Box or a mail drop), but request consumers to send the “fee” to a location out-of-state or out-of-country. The U.S. address that these con artists provide often turn out to be fraudulent or non-existent.

Consumers can protect themselves from these  sinister loan brokers by being aware of the most common signs of loan fraud:

  1. Immediate information- Often, consumers make the mistake of providing personal information (social security, bank account, credit card numbers, etc.) before receiving any paperwork on their loan. To avoid issues such as identity theft, you must request to receive the papers first before deciding to apply for credit.
  2. Immediate advance fee- Consumers also make the mistake of feeling pressured into send an advance loan fee.  A trustworthy/reputable financial institution will never request immediate payment or electronic transfer of funds as the sole method of payment.
  3. Will not provide location information- Refuse to do business with a financial broker unless you have their actual physical address. Also, be weary of lenders who request payment in a different state/country other than their P.O. Box location.
  4. “Guaranteed” loans- Legitimate lenders WILL NEVER grant loans to people before they even apply, especially those with poor credit, no credit, or bankruptcy history. As the saying goes, “If it’s too good to be true… it probably is.”
  5. Written communications contain errors- Reputable organizations will never send you documentations containing typographical or grammatical errors. Always read any documentation that you receive very carefully.
  6. Request for immediate payment before written confirmation- If you do not have your loan confirmation in writing, do not send money. It is against the law to solicit payment before written confirmation.

Recently, there has been a surge of financial con artists who fraudulently use the names, logos and/or addresses of reputable financial organizations for their criminal activities. The best way to avoid falling victim to these advance fee loan scams is to search locally for a reputable lender. Although legitimate lenders may charge application, appraisal, or credit report fees, these charges are generally deducted from the total loan amount. Also, it is best to check the reputation of any financial institution with the Better Business Bureau. The BBB will provide you with important information about the legitimacy of these businesses and if other consumers have filed complaints against them.

In addition, there are nonprofit organizations in every state with trained credit counselors who can assist individuals with debt problems. Contact your local BBB for tips on selecting a trustworthy credit counseling organization.

TIPS for Everyone:
As with any financial arrangement, especially online transactions, safety comes first. While many organizations do their best to keep the scammers and spammers off their site, you can minimize your risk of falling prey to a loan scam by following some simple tips outlined below.

  1. Discard any mail that has flashy headlines that read “One-time loan offer!”, or “You can't get this loan anywhere else!” 
  2. If you receive telemarketing calls for pre-approved lines of credit, which most of us have experienced, the wisest thing is to simply say that you are not interested and hang up.
  3. Do not open e–mail messages that claim, "Loans available for a one-time up-front fee", especially if you have not applied for a loan. Delete these messages because they may contain viruses or trackers.

TIPS for Potential Borrowers:
These tips are intended for the benefit of everyone, especially users who are weary of loan offers or investment interests from questionable investment bankers.

  1. Ask the investors to provide their information first. Ask for their name, phone number, and contact location.
  2. Verify the legitimacy of the financial organization by contacting your local Better Business Bureau or the Federal Trade Commission about their practice.
  3. Request references of people who have successfully borrowed from them in the past, and then call these references to discuss your decision to borrow money from the lender.
  4. Conduct business with a firm in your own country, especially if you have difficulty verifying the legitimacy of foreign investors.
  5. Never pay upfront for a loan application review.

Do not be discouraged from fraudulent lenders. There are many legitimate financial sources available for starting your business. Examine your options with a clear mind so that you can minimize any chance of being scammed. These safety tips should assist you in understanding the credibility of a lender so that you can make wise financial decisions.

You should always take your time in evaluating the legitimacy of any financial offer. Do not allow any lender to pressure you into committing to an investment before you are certain of their legitimacy. Advance loan fee scams are illegal. Victims are encouraged to file a complaint with the BBB ( While there is almost no chance of recovering a payment fee, victims can provide information to help BBBs warn consumers and assist government investigations.

These tips are not intended to be comprehensive and are offered solely as an "as-is" basis without conferring any additional rights or guarantees except those outlined in our "Terms and Conditions".

Other resourceful websites that can assist you with loan fraud:   The Federal Trade Commission  A website made “by consumers, for consumers.” A website dedicated to helping you protect yourself from clever scams online and offline.

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