Common Business Loan Scams and How to Avoid Them

Small business owners are constantly targeted by bad actors, especially when seeking financing. With the rise of online lending and fintech platforms, scammers have adapted, offering “easy approval” and “instant cash” to lure in desperate or unsuspecting business owners.

If you're actively exploring funding, it's essential to understand how business loan scams work—and how to protect your company from financial fraud and data theft.

In this guide, we’ll break down the most common business loan scams, the red flags to look out for, and how to avoid becoming a victim.

What Is a Business Loan Scam?

A business loan scam involves fraudulent individuals or companies pretending to offer legitimate financing—only to steal money, personal information, or both. Scammers often use fake websites, urgent messaging, and hard-sell tactics to pressure business owners into making quick decisions.

Their goal? To gain access to your funds or sensitive business data under the guise of helping you.

Why Small Businesses Are Targeted

• Urgency to secure capital

• Lack of financial experience

• Limited access to traditional funding

• Higher risk tolerance in crisis situations

Small business owners, especially those with bad credit or urgent cash flow issues, are often more vulnerable.

7 Common Business Loan Scams to Watch For

1. Advance Fee Scams

How it works: The scammer offers a loan—sometimes guaranteed—but requires you to pay an upfront fee to "process" or "secure" it. Once paid, the lender disappears.

Red flag: Legitimate lenders deduct fees from loan proceeds, not before approval.

2. Fake Lender Websites

How it works: Scammers build professional-looking websites impersonating real lenders. Applications lead to identity theft or bank fraud.

Red flag: No physical address, poor grammar, no encryption (https://), and no verified reviews.

3. Guaranteed Loan Approval

How it works: A “lender” promises loan approval regardless of your credit history, time in business, or financials.

Red flag: Real lenders never guarantee approval without proper vetting.

4. High-Pressure Sales Tactics

How it works: You're pressured to “act now” or risk losing the offer. Scammers may say the loan is “pre-approved” or “expiring today.”

Red flag: Reputable lenders give you time to review terms and conditions.

5. Phishing Emails or Calls

How it works: You receive unsolicited offers via email or phone asking for sensitive info like your EIN, bank logins, or SSN.

Red flag: Cold calls or emails requesting personal or banking information should be treated with extreme caution.

6. Loan Modification Fraud

How it works: Scammers claim they can “renegotiate” or “restructure” your existing loan for a fee. In reality, they do nothing.

Red flag: Modifications should always go through your current lender—not third parties.

7. Fake SBA Loan Offers

How it works: Scammers impersonate the U.S. Small Business Administration (SBA), offering fake pandemic relief or government-backed loans.

Red flag: The SBA does not contact borrowers directly to offer loans. Use only official channels at sba.gov.

How to Verify a Legitimate Business Loan Offer

Use this 6-step checklist before engaging with any lender:

1. Check for a physical address and contact number.

2. Read online reviews on Trustpilot, BBB, or Google.

3. Verify the lender is registered in your state.

4. Check for secure website encryption (https://).

5. Ask for clear loan terms in writing.

6. Call the lender independently—don’t rely on inbound contacts.

What to Do If You Suspect a Scam

If something feels off, pause and investigate. Here's how to respond:

• Do not share sensitive information.

• Report the lender to the Federal Trade Commission (FTC) via reportfraud.ftc.gov.

• Contact your bank if you’ve provided financial information or sent money.

• Alert your local small business bureau or attorney general’s office.

Best Practices to Avoid Business Loan Fraud

Implement these proactive strategies:

• Use Trusted Lenders: Stick with known institutions or platforms that are reviewed and regulated.

• Know the Market Rates: If the terms seem “too good to be true,” they probably are.

• Secure Your Data: Never send sensitive documents via unsecured channels like email or text.

• Have Legal Review: Ask a CPA or attorney to review loan terms before signing anything.

• Educate Your Team: Train your staff to recognize fraudulent emails and suspicious outreach.

Summary: Stay Smart, Stay Protected

Business loan scams prey on urgency, desperation, and trust. The best way to protect yourself is by staying informed, taking your time, and working only with reputable, transparent lenders.