How to Avoid "Processing Fee" Loan Scams

So as it turns out, you need startup money to fund your new business venture, but you're afraid of falling victim to one of the many "loan scams" out there-fraudulent companies that demand an up-front processing fee (often going up into the thousands range), but when you eagerly pay them in the hopes of getting that loan, you suddenly realize you have that much less to fund your startup than when you began.

If you've already fallen victim to one of these scams, you're not alone. Even the smartest people in the world can let their guard down and be taken advantage of. That's why the number of these scams has been steadily rising over the past few years. The best way to prevent getting scammed is to thoroughly check the lender's background and reputation before you give out any personal information or send them any money. Anyone who guarantees you a loan without thoroughly reviewing your credit history or business plan is usually hiding something. If they ask you to send them an up-front "processing fee" overnight, that's a definite red flag. Overnight mail is how scammers fly under the U.S. Postal Service radar, who would then be able to track them down.

Sometimes, money isn't the only reason scammers are after you. Many fraudulent loan companies will also sell your personal information (including your Social Security number and bank account numbers) committing identity theft. This type of scam can spill over to cause you unending trouble for your business as well as your personal life. For your own protection, insist on getting a written version of the loan application. If they balk or otherwise continue to pressure you, it's a good indication they're trying to scam you.

The best possible move you could make is to check out the lender with the Better Business Bureau ahead of time to find out about any issues or complaints have been filed against them. If possible, try to request financial statements of the lender that specify their assets. Don't discount your local resources, either; small-business clubs and other local business groups may have lenders who are far more trustworthy and well-established.

Although it's no secret that people with bad or no credit will have a far more difficult time getting financial assistance from a reputable lender, all is not lost. There are some lenders out there who may consider a high-interest loan for business ventures (or owners) they consider high-risk, with a stipulation that the rate will be lowered when your business shows positive cash flow or the capability of covering a debt; this cost reduction will help you as your business grows and becomes successful.

Just as with everything else in life, there are no shortcuts, and the same holds true for getting a loan. When all else fails, just remember the age-old saying: if it sounds too good to be true...it's time to find another lender.