How to check if a lending company is legitimate


Corporate loans can be vital to the growth of your business. But you should be careful when buying a business loan as there are many scammers out there who are out to take advantage of business owners who they think are desperate. Hence, it is important to know how to check that a lending company is legitimate. Here are some tips to help you spot potential red flags.

Common types of loan fraud

There are two common types of loan fraud to watch out for. (Both personal loan fraud and business loan fraud often work in a similar way.) They are:

  1. Advance Loan Fraud. This is where credit scammers promise a loan but require upfront money to either pay for “insurance” or to make some upfront payments to “demonstrate good faith”. Card – either by asking them to send them the card or, more often, by calling them aloud the information on the card.
  2. Phishing scam. In these scams, someone is trying to trick you into revealing sensitive information in order to provide you with a loan. The loan never comes through, but you or your company becomes a victim of identity theft.

Both can be financially devastating. Running a business is stressful enough without falling for a loan scam!

How to spot a loan fraud

There are warning signs that you are dealing with a credit scammer rather than a reputable lender:

Requires prepayment. Scammers may insist that you send them money before you get the loan. In some cases, there may be legitimate upfront loan fees (such as a commercial mortgage valuation), but in most cases these fees are a bogus attempt to steal your money. The scammer will usually ask you to pay using a method that is difficult to track and non-refundable, such as bank transfer. B. Bank transfers or prepaid cards.

Requests personal information but is not secure. This is difficult because credit applications with legitimate credit companies often require a Social Security Number (SSN) for a personal credit check and / or an employer identification number (EIN) or tax identification number (TIN) for a business loan. Your bank account number may be required to verify receipts or to enable ACH payments. When asked to provide personal information, it is important to make sure that you are dealing with a reputable company and using a secure website. (See tips below.)

Loan approval regardless of the loan. Scammers often say that you have been approved for a loan even though you have bad credit and do not meet normal qualifications. Most lenders have some basic creditworthiness requirements, whether based on personal and / or business credit. While some types of small business finance are available to poor credit entrepreneurs, these options often come with a higher cost.

Great credit terms for a new or troubled business. Most business loans require a combination of strong income, at least 1-2 years of business activity, and / or good credit. If you don’t have any of these qualifications, you are unlikely to qualify for most types of small business finance. If someone calls you and promises you funding at very low interest rates regardless of your qualifications, you may be dealing with a scammer.

How to check if a lending company is legitimate

There are several ways to verify that a lending company is legitimate. First, check out the credit company on the Better Business Bureau (BBB) ​​website. Do a quick online search and pull up customer reviews. Finally, check with your state’s attorney general to see if the lender is registered with the appropriate state agencies.

Before you apply to a lender, think about these steps to make sure you don’t get caught up in a scam.

1. Check for online presence

Before doing business with an online lender, do a web search for the company name. (Tip: try the News tab in Google to see if the company has been featured in any news articles.)

You can also Look for the domain name registration to see when a website was registered. This can help you identify a brand new website that may have been created for unscrupulous purposes.

Credit intermediaries and credit companies must be registered in certain states. If so, this license information will be listed on their website. Look for it and if in doubt, double-check.

Most importantly, before entering any information on an online lender’s website, you look for a padlock in the URL to make sure the website is secure. You can then click 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. Research the business location

Look for a physical address under the contact information on the website, and then find that address on Google Maps. You’d be surprised how many of these searches lead to a residential address or a non-lending business! If the only address is a PO Box, make sure you do additional research to make sure the company is legit. You can also do a reverse search on the phone number that is calling you.

2. Check with the Better Business Bureau

Even if the lending company has an online presence, it doesn’t necessarily mean that its businesses are not predatory. Check the Better business office Website to learn more about whether it is worth working with the lender. Typically, you’ll see a letter grade from A + to F along with the reasons for the grade.

In some cases, you can also read customer reviews, which will give you a better idea of ​​what to expect. If you find the lender is not a good fit, you can also use the website to help find a potentially better lender.

3. Do a bowel check

Lenders want your business, but they shouldn’t be desperate for it. If you feel that the person you are dealing with is overly aggressive or manipulative, it may be a sign that they are trying to make you nervous and make you feel like you are making a decision must meet before you know all the facts.

If at any point you are uncomfortable with the process, take a step back and consider why you are thinking this way and whether you should continue.

4. Check with the Attorney General

When almost everything works, but you want to be absolutely sure, contact your state’s attorney general’s office or the Attorney General of the state in which the company is located. Lenders and credit intermediaries are often required by law to register with government agencies before doing business there.

Who Is At Risk Of Loan Fraud?

The more desperate you are about getting funding fast, the more likely you will be the target of predatory lenders or scams. You need to be extra careful when looking for:

  • A debt consolidation loan because you default
  • A bad credit loan because your credit isn’t good
  • A large amount of loan with minimal qualifications, or
  • A business loan, despite having been declined by multiple lenders.

It doesn’t mean you can’t find a loan, but you have to be very careful not to be tricked into by a scam.

Warning: watch out for loan offers that are too good to be true!

Other tips to keep in mind:

In addition to the steps above, there are a few other little things to think about as you learn how to verify that a lending company is legitimate. Here are some questions and answers to help you:

Do credit institutions ask for money in advance?

Some lenders charge a fee to process your loan. However, this fee is usually deducted from your loan payout. Legitimate lenders do not require you to pay the fee directly before getting access to your funds.

Do banks check your bank account?

In some cases, a lender may ask for your bank account number in order to know where to send the loan funds after your application is approved. Some online lenders may ask you to connect a commercial bank account to analyze and review your earnings to determine if you are eligible for an online loan. In these cases, make sure you are dealing with a legitimate lender and secure website.

Watch out for scammers who want access to your account in order to withdraw or transfer funds to their own account.

How do I spot personal loan fraud?

Some private lenders allow you to use personal loan funds to start or fund a business, but there are also plenty of scams to watch out for here. In general, you can follow the same steps as you would with a business lender to find out if you are being presented with a legitimate personal loan offer.

Are Bad Loans Legitimate?

There are several legitimate lenders who specialize in working with bad credit borrowers. For the most part, these lenders base their decision on your verifiable business revenue and will require at least a year in business. Take your time comparing bad credit business lenders to ensure that you not only avoid fraud but also improve your chances of getting favorable terms on your loan.

Where can I report a loan fraud?

You can report credit fraud to the local law enforcement agency Attorney General, the Consumer Protection Office (CFPB) and / or the Federal Trade Commission (FTC).

The bottom line

Trying to raise capital to grow your business can save yourself from losing money and potentially your business knowing how to verify that a lending company is legitimate. If you consider these tips and learn where to look Compare reputable lenders, get the help you need without worrying about being taken advantage of.

This article was originally written April 3, 2019 and was updated September 15, 2021.

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