According to TransUnion, there was an 80% increase in fraud attempts from 2019 to 2022. The Bangko Sentral ng Pilipinas estimates that victims in the country have lost as much as ₱2 billion to scams. These losses can be business-ruining, emphasizing the need to practice vigilance in every financial action, particularly when seeking business financing.
Scammers often use elaborate tactics to remain undetectable, such as creating professional-looking websites for fake businesses or using confusing wording in loan agreements. Falling victim to business loan fraud jeopardizes your finances and erodes stakeholder trust.
Read on as we discuss practical tips to avoid scams and fraud, and we’ll also share red flags to watch out for when applying for and securing business loans.
How to Avoid Business Scams and Fraud: 5 Things Businesses Need to Know
The tactics criminals use to conceal their motives make identifying a business loan scam or fraud attempt difficult. Before proceeding with any business loan, you must follow these steps to protect yourself and your company from potential financial ruin:
1. Do your research on the lender
Don’t let professional-looking websites deceive you. Dig deeper into the lender’s background to establish their credibility; read past customer reviews if you have to! Look for their license, accreditation, and contact information. Fraudulent lenders often hide these details to avoid detection.
Consider contacting them to learn more about their business and the specifics of your application. Credible lenders often have corporate email addresses, so be cautious if you find a Gmail or Yahoo address in their contact information. Additionally, be wary of advance fee scams, where scammers ask for an upfront payment. These are clear red flags.
“Verifying the online legitimacy of lenders found on the internet is crucial for business owners,” Renz Estrella, President of Zenith Capital, emphasizes. “Business owners should combine these verification tips with vigilance and a healthy dose of skepticism when dealing with online lenders.”
2. Read and understand the loan agreement
One of the best ways to understand how to avoid online scams is to read the loan’s terms and conditions before agreeing on anything. In the context of how to prevent fraud, that means reviewing your loan agreement terms diligently. There may be important details in the fine print that you might’ve overlooked.
Examining the loan agreement is crucial for devising your business loan repayment strategy. Look for critical details such as repayment deadlines and interest rate calculations.
You should scrutinize the agreement for vague, incomplete, or inconsistent terms. Watch out for penalties, fees, and clauses that could get you into hot water if not clarified. If you encounter anything you don’t understand, seek clarification from the lender. Blindly accepting a loan agreement without reading it can expose you to business loan fraud.
3. Protect your personal and financial information
Fraudsters, especially from scam loan apps in the Philippines, will always attempt to obtain this information to hack into your systems, steal data, and commit identity theft.
A popular method hackers use to access your device is through phishing scams. They pose as legitimate businesses, luring you through emails, texts, or phone calls to give them your account credentials. Recognize these scams by their offers that seem too good to be true, have an excessive sense of urgency, and have seemingly safe links that are unsafe to click.
Clicking on phishing links gives hackers access to your devices. That’s why it’s best to work with cybersecurity professionals to identify these scams faster. Furthermore, you can apply the following measures to secure your data:
- Use strong passwords: Create complex passwords that include special characters, uppercase and lowercase letters, and numbers that are difficult to crack.
- Implement multi-step verification: This cybersecurity feature alerts all authorized users of your account about login attempts.
- Consider encryption. This cybersecurity standard scrambles your data to make it unintelligible to external parties.
Sharing personal data with fraudulent entities will expose your business to severe ruin. Therefore, you must do everything possible to prevent these scams.
4. Report any suspicious activity or incident
Do you notice anything out of the ordinary while interacting with the lender? For instance, if you’re speaking to a lender in person or on the phone, do they sound needlessly aggressive or too much like a salesperson, acting kindly and exaggerating the benefits of their loan product? If something feels off about your interaction, it’s best to back away.
Report the “lender’s” suspicious activity and behavior to authorities, such as the National Bureau of Investigation (NBI), the Bangko Sentral ng Pilipinas (BSP), or the Securities and Exchange Commission (SEC) immediately to protect yourself and other businesses from potential losses.
“It’s important to note that reporting a scam is a civic duty, and it can lead to the prevention of further fraudulent activities,” Estrella recaps. “It’s essential to provide all relevant information and documentation when reporting to assist the authorities in their investigations.”
5. Seek professional advice
Your safest tactic is to consult a financial professional. Beyond teaching you how to avoid business scam attempts, they can help you safely overcome business challenges, such as the lack of cash flow. If you’re new to the lending process, they can help you understand the do’s and don’ts of business loans.
Practice Responsible Business Financing
Whether short-term or long-term, business loans can propel your business forward, especially when finances are tight. However, it’s becoming harder and harder to tell which financial institution can legitimately lend you the funds you need with credible repayment terms.
Always remain vigilant when seeking business financing. While business loan scams are unfortunate, they are avoidable. By understanding how criminals operate, you can protect your business against scams and fraud attempts.
It also helps to remember that you don’t always have to become locked into your first or second financing option. The financial market is full of financing opportunities. When in doubt, it’s best to approach reputable, established companies for your financing needs.
Zenith Capital, a well-established lending company in the Philippines, boasts over 4,000 affiliated agents and has successfully served over 5,000 clients. We specialize in offering flexible, trustworthy loans with a hassle-free borrowing process. Contact us to learn more or begin applying for a business loan today!
Rizza Templonuevo is not just an accomplished finance professional and business leader, but also a loving wife and a dedicated mother of two. With a passion for helping businesses grow and thrive, she brings her extensive knowledge and expertise as Vice President of Zenith Capital Credit Group Corporation to help countless SMEs and corporations across the Philippines access the financing they need to succeed.
When she’s not busy with work, Rizza enjoys immersing herself in the worlds of fashion and social events, as well as traveling to new and exciting places.