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Business loans are usually obtained for business expansion, renovation, business operations financing, and other investments. However, widespread financial scams and business loan frauds have been victimizing business owners these days.

Cold calls, guaranteed loan applications, advanced payments, no contact information online, or generic email addresses are among the signs of financial scams. Apart from these, here are six business loan scams that you should know and avoid.

Upfront Payments

Never get tempted to apply on loans that promise bankruptcy-friendly application, 0%interest, and no/low credit requirement in exchange for a low upfront fee. Scammers call these advanced payments as ‘one-time,’ ‘processing, or ‘application’ fees. And these generous business loans done via phone calls are currently among the top five marketplace scams.

There are some situations when “legitimate” banks charge upfront payments, like credit check fees, underwriting fees, and origination fees. However, you’ll get scammed when you’ll deal with illicit lenders. Make sure to apply on legit lenders or lending platforms only. If an unknown online lender asks for upfront money right away, steer clear.

Outright Peer Lending Scams

Peer-to-peer lending is another form of business scam that you might already encounter through any social media platforms, especially on Facebook Messenger. You’ll typically receive a message that sounds like: “Poor Credit? No problem! Apply for a loan up to $100Kwithus!”

These shadowy peer lenders also require upfront payments. But unlike advanced payments that are asked from a phony business, these business loans are offered by an individual online. There are reputable peer lending platforms, though. But if you fall prey to unscrupulous peer lenders, they can steal your money, information, and your identity.

Consultancy Fee

Applying for a business loan is a complex process—but only for those who aren’t sure about what they’re doing. In actuality, all information about loan applications is readily available on the Internet. However, for those people who thought they stand no chance, they’ll ask assistance from consultancy firms and eventually get victimized with consultancy fees. These consultants would make you believe that acquiring a business loan requires specialized expertise and eventually offer you access to an exclusive low-interest deal, which nowhere exists. Long story short, you’ll get scammed if you’ll have little understanding of finance. It’s best if you don’t ask help from a middle man and get a direct loan from a legit lender.

Funding Kit Scams

In addition to getting scammed from getting consultations, be wary when you receive emails that offer government grants for free. Except for researchers and developers, the US government will never ask other agencies to offer business grants. If they do so, the government will have it posted on, rather than be emailed by someone. Scammers will inform you that you received a Government Funded Grant and offer you a “kit” to aid you through the financing process. Of course, you have to pay for the kit, making it a scam. Like consultancy fee scams, these funding kit scams are mainly made not to help you in any loan application process, but to dupe you out of money.

Credit Repair Scams

Business owners usually get worried about their poor credit rating and history, which play big roles in the business loan application. It’s no surprise that smart frauds would take advantage of this. They’ll claim that they’re experts who can bump your score up by several points in days (or overnight!) in return for a hefty fee. Don’t buy it. Of course, it’s a scam. There’s no way a credit rating can be improved within 24 hours or even in a week. It takes several weeks and months of financial discipline. But here’s the catch. Nowadays, legitimate lenders are becoming more lenient in their loan requirements. You may be eligible now for a business loan, even if you have a low or short credit history. Just choose wisely.

Ghost Investor Scams

Similarly to consultancy and funding kit scams, ghost investor scams in the form of emails would notify business owners that there’s an unnamed investor who’s interested in supporting your business “financially.” But for you to know that ghost investor and since it’s a scam, the sender of that email will ask for some transaction fees to set it all in motion. These ghost investor scams are really clever. They stalk websites that connect entrepreneurs with capitalists and investors, so you should outsmart them. If you really want legit investors, you have to build and widen your network on your own. Equity financing takes one year or more to pan out.


You can always easily determine a legit business lender from a scammer once you know-how. The rule of thumb is that a lending company’s representative should know and can provide the company’s state license number, active phone number, and physical address. Run a background check on the company information that the representative gave you. Ultimately, search the company’s information over the Internet and check whether there are red flags, negative feedback, or scam warnings posted about the said company.