How to avoid fraudsters and predatory lenders

Tom Quinn
Tom (he/him) is a growth marketing manager at Snagajob helping small businesses find hourly workers.

The financial experts at claim that one in three Americans are the victim of financial fraud at some point in their life. If that victim is a business owner, fraud could not only affect the business but also the livelihoods of their employees as well. That’s why it’s especially important for small and medium-sized business owners to take extra care in avoiding financial fraud.

While the coronavirus pandemic has disrupted practically every industry, fraudsters are busier than ever. Scammers are taking advantage of the uncertainty to pose as federal agents or philanthropic companies, and predatory lenders are draining businesses of their savings while they’re unable to generate more revenue. Luckily, support organizations are fighting back to protect business owners and stop the scammers wherever they can.

What’s happening?

The pandemic has given fraudsters a new opportunity to take advantage of small businesses. The Federal Trade Commission (FTC) has reported that criminals are contacting business owners claiming to represent the Centers for Disease Control (CDC) or the Small Business Association (SBA), using information from news stories and federal press releases to make their scams ring true. It’s become such a widespread issue that the FTC has set up a dedicated complaints portal just for coronavirus-related scams.

 On top of these new fraud tactics, the pandemic has another financial villain: merchant cash advance companies. These lenders provide money to businesses based on current revenue, often at a high interest rate. Borrowers often need to provide these cash advance companies with access to their accounts, who then are repaid on their loans with regular withdrawals.

 While this practice has always been a risky last resort for small businesses, the real problem arose once the pandemic hit. For most small businesses, revenue has plummeted, but there has been no change in their loan repayments. Even businesses without any income have had their accounts drained by these predatory lenders.

 The merchant cash advance companies have even been accused of menacing, gangster-like tactics to scare borrowers into repaying. NBC News reported how two renowned lending companies, RCG Advances and Par Funding, threatened their clients with legal action, public shaming and kidnapping until they repaid their unreasonably high payments.

How could this happen?

The main issue with merchant cash advance companies is that they aren’t subject to the same regulations as banks. This means that they’re able to set their own rules on loans, interest rates and repayments. While federal agencies are now cracking down on the major culprits, the methods they use are still available to smaller lenders across the country.

 When it comes to fraudsters, federal agents have their work cut out for them. Internet communication, illicit software and online banking allows scammers to con huge numbers of people in a short amount of time, making it hard for enforcers to keep up. Factor in that business owners are more financially desperate than ever, and it’s no wonder that fraudsters are able to work so effectively.

What can you do?

All hope is not lost, and there are still things you can do to protect your business and avoid fraudulent or predatory lenders.

1. Resources for small businesses

Thankfully, as long as there are scammers trying to cheat you out of your money, there will be organizations trying to stop them. The financial advisers at have published these consumer tips for avoiding loan scams, and this handout from the SBA breaks down the main tactics they’ve seen scammers use during the pandemic. There are also various resources available specifically for Black business owners, many of whom have been hit the hardest during the pandemic.

2. Train your eye for scams

Fraudsters are very good at disguising themselves as reputable sources, but they will usually still exhibit some red flags that you can look out for. For example, when it comes to federal loans, remember that the SBA will never contact you first. So be careful of unsolicited calls or emails. In fact, if any company contacts you, do your research to make sure they’re legitimate, and as always, never click on a link in an email, no matter how trustworthy it seems.

3. Pay attention to percentages

One of the reasons merchant cash advance companies are so damaging to small businesses is their excessive interest rates. Predatory lenders have been seen to charge anywhere from 400% to over 1000% interest on loans. Pay close attention to the rate you’re borrowing at.

 When it comes to government loans, the SBA says that brokers are limited to charging ‘3% for loans $50,000 or less and 2% for loans $50,000 to $1,000,000 with an additional ¼% on amounts over $1,000,000.’ Any percentage exceeding these numbers is something to be suspicious of.

4. Ask for help

Now more than ever, there’s no shame in asking for help. If you see an opportunity that seems too good to be true, if you’re approached by a potential lender or if you’re looking for financial support, always consult with a reputable support organization first before committing.

Feel free to reach out to Snagajob to learn more about how we're keeping your job postings safe from fraud!