Common Business Finance Scams and Schemes

Perhaps the main reason that business finance scams and schemes succeed is the current fiscal climate. It is more difficult than ever for entrepreneurs to obtain sufficient funding for business ventures.

The Business Finance Problem

With notoriously uncertain business prospects, lending institutions are careful to not invest in ventures that are more likely to fail than succeed. At the same time, many an entrepreneur may not have a stellar personal credit rating, which increases the problem of finding loans that provide the necessary funds for small business start-ups. Not surprisingly, small business owners turn to the Internet and sometimes even their email inbox in search of ready cash.

Opportunity or Scam?

1. The business to business finance proposition: Never pay large up-front sums for loan fees
In this scenario a supposed lender offers the entrepreneur a business to business loan at an amazingly low rate. To qualify, the small business owner must pay a good-sized portion of the fees associated with this transaction in advance; rolling them into the loan is not possible.

The 'lender' demands payment of the fees by wire transfer but guarantees that immediately upon receipt he will wire the loan funds into the entrepreneur's business account. As you might imagine, the scammer makes off with the advance and there is no actual lending institution.

2. Use a government grant for small business finance: Do not pay for free money
Quite common among email scams, a supposed small business owner organization alerts the entrepreneur to the availability of government grant money for her particular line of business.

In return for a few hundred dollars, the organization offers to prepare an application package, citing the difficulty in assembling the forms and ability to streamline the process from their end as a major selling point. The entrepreneur figures that $200 or more is not a big risk to take and wires the money. The scammer is never heard from again.

3. The investment seminar: If it sounds too good to be true, it isn't
The Better Business Bureau explains that in this finance scam the fraudsters may very well talk entrepreneurs into investing some business capital into a Ponzi scheme. Buzz words are "high returns for low risks" and even though the initial investment is rather sizable, well-done brochures and made up statistics lead the business owner to believe that they will make back the funds before needing the business capital.

When the business owner later suffers remorse or tries to cash in on the investment, the scammers are nowhere to be found.

Afraid You Might be Targeted by Business Finance Scams and Schemes?

Report email scams as soon as you become aware of them. Contact law enforcement if you sent any money to an entity and now do not receive the agreed upon loan or goods. Consider spending some time on for-pay and free online fraud courses to hone your skills at recognizing business finance scams and schemes that are currently making the rounds on the Internet.

Source

BBB: "How to Spot the Red Flags of an Investment Seminar Scam"