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Deep Blue Sea

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Don’t get driven into the jaws of advance-fee loan sharks.

By:  Lynn Celmer

No one likes to get scammed. You feel like an idiot. You feel violated and you’re angry because you feel like you should’ve known better. Many small business owners are so desperate to find money to stay afloat, they are lured by the promise of a guaranteed loan and end up getting duped. The current credit crunch is leading small business owners to deal with a funding pinch and an increase in business loan scams.

Pay to Play

The most common type of scam, according to Allison Preszler, media relations specialist for the Council of Better Business Bureaus, is the advance-fee loan scam. “Essentially, this scheme will be found online and will ask you to fill out the online form including sensitive information such as bank information, social security number, etc.,” Preszler said. “Scammers lead people to believe that by filling out the form, they are applying for the loan. You might even talk to someone on the phone who tells you that you are approved and that all you need to do is wire them a couple hundred dollars to several thousand dollars as collateral to cover costs like administrative fees. Once you wire the money, you have no way of getting it back, as you don’t have the same protections you would with a credit card.”

These scammers will try to keep the charade going as long as they can to maximize their take. If you do manage to get someone on the phone, they’ll usually tell you that they need another thousand dollars to see if you’ve gotten savvy to it yet, adds Preszler.

Over the past few years, advance-fee loan statistics have escalated to startling heights. In 2006, the BBB received 1,700 complaints about advance-fee loan scams. In 2007, it jumped up to 3,000, and in the first four months of 2008 alone, they logged 400-500 complaints.

Advertisements for advance-fee loans frequently appear online and may use a false business name and address, often with a toll-free 800, 866, or 877 phone number that is difficult to trace or rings into Canada. “People like to think of them as nice people, because they live just to the north of us,” Preszler said. “It’s unfortunate and it’s all across the country. Because it’s on the Internet, it makes it indiscriminate of who’s going to be affected.”

Just as you can’t judge a book by it’s cover, you can’t judge a company by it’s website. They can make these websites look really slick and professional. A fancy website or ad doesn’t guarantee a company is trustworthy. According to Preszler, with advance-fee loan operations, the website will be up and down in two weeks. The scammers will take the website down and put up a new website under a new name, which makes it harder to catch them. With a professional background that includes stints in the criminal justice system and at auditing firm Arthur Andersen, Tracy L. Coenen has found her passion in investigating fraud. Coenen agrees with Preszler in that people have gotten in over their heads and are forced to turn to other lending options. “Often the people using these alternative funds are desperate,” Coenen said. “In the case of businesses, I think it’s always important to ask why they’re not able to get traditional financing. Is it because the bank sees something they don’t? Maybe the business plan isn’t developed enough or the market isn’t ready for the idea. It could also be that the owner isn’t on stable financial footing to start with. I realize that currently the credit market as a whole is tight and even the best plan might not get a loan today. But traditionally, I think the banks have had pretty sound judgment in making credit decisions, and the business owner should strongly consider it (i.e. maybe now is not the time and that’s the message the bank is sending).”

Know the Signs

Resources are available for business owners to check whether a loan offer is valid or not. People can go to the BBB website and check out over 3 million companies. But be aware that sometimes a business has their identity stolen and the BBB report is about the legitimate business and not the evil twin company that’s a scam. Typically, the legitimate business will have its own website. To vet if a company’s ID has been stolen, do a Google search and make sure that it really is the company’s website. If you’ve never heard of the company, that should be a red flag. A simple way to research a company is to type the business name and scam into Google to see what comes up. You can even call the company up directly.

The bottom line is, if you think something is a scam, then it probably is. Your best defense towards scammers is to be overly cautious and trust your gut. —Lynn Celmer


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