The “Advance-fee loan scheme”, as the scam is more commonly known, has been around for years. However scammers have recently intensified their efforts in part due to the current financial crisis in addition to tighter underwriting requirements in regards to small business loan financing created by Dodd-Frank (Too Big To Fail ) Legislation.
The scam is fairly straightforward. By way of telephone, email or internet communication , these so called “loan broker” con artists target small business owners and entrepreneurs by promising them they can secure a sizable business loan for them and all they have to do is pay the loan broker a fee “in advance”. According to Alabama Securities Director Joseph Borg, businesses with $1 million to $50 million in revenue are the most common targets because under the new legislation banks have the most difficult time lending to these microcap companies.
What happens next is that the small business owner will pay a substantial upfront fee up to the loan broker with a loan never actually materializing. The small businessman is ultimately met with dozens of unanswered phone calls and unresponsive emails, with the con man eventually leaving town. According to Federal Trade Commission (“FTC”), this type of scam has been happening with more and more frequency. In 2013, the FTC booked a record 53,833 complaints about advance-fee loans filed by entrepreneurs and consumers. This number is up from 43,070 in 2012 and 44,504 in 2011.
As mentioned above, these scams typically target desperate business owners who feel like they have no other options. Paying a broker a fee in advance without any guarantees of success is not the wisest of business moves. If you are a small business owner looking for additional capital and have been denied a loan by your bank, it is not the end of the world. Alternatives, such as invoice factoring offered by Capstone Corporate Funding, LLC, exist which can provide you with the capital you need to get your business back on track and do not require the advancing of upfront fees with the hope your loan will be approved and funded, if at all.
