It was … inevitable. As the federal funding bailout was put together, and the SBA Paycheck Protection Program was announced, the scammers came out of the woodwork.
Federal Funding and the Dirty Business of Scamming
There are essentially two ways in which scammers could try to bilk the system. One is by way of fraudulent applications for federal funding. The other is by targeting small businesses and trying to rip them off.
Let’s take a look at both.
Scammers Trying Fraudulent Applications for Federal Funding
Both CNN and the New York Times warn of a crush of demand, particularly at the start. And it’s no wonder, as there were nearly 10 million new unemployment claims for the weeks of March 15 – 28. Businesses large and small are shedding workers. Hopefully, a lot of this unemployment will be temporary.
But in the meantime, there are so many businesses in need that the ability of fraudsters to slip their bad actions in among the legitimate claims is heightened. That’s not good news. After all, the federal funding is limited. Federal funding isn’t infinite – and just printing up money to meet demand invites catastrophic inflation.
Fraudulent Applications for Federal Funding – the CARES Act May Be Making that Easier, not Harder
One update has been to raise the interest rate from .5% to 1%. The idea is to make it easier for community banks to participate.
According to the ABA Banking Journal:
“The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs…The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.”
“In light of the urgent needs, Congress also allowed the SBA to expand eligible lenders who can participate in the program, meaning that banks that typically aren’t included on the SBA’s preferred lender list and don’t have experience administering SBA loans will now be allowed to.”
Is this a recipe for problems? You’d better believe it.
The SBA and federal government – rightfully – want to streamline the process and get cash into the hands of as many small business owners as possible. But unprecedented volume + inexperienced lenders + a ton of cash + scammers smelling easy marks = every opportunity for things to go haywire.
Federal Funding and Attempts to Rip off Small Businesses
In perhaps the unkindest cut of all, there are already situations of scammers trying to prey upon desperate small business owners.
According to the SBA, they do not initiate calls regarding either 7(a) or disaster loans or grants.
“If you are proactively contacted by someone claiming to be from the SBA, suspect fraud.”
It’s best to hear it straight from the SBA about scammers.
SBA Federal Funding Advice on Scammers
- “If you are contacted by someone promising to get approval of an SBA loan, but requires any payment up front or offers a high interest bridge loan in the interim, suspect fraud.
- SBA limits the fees a broker can charge a borrower to 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 attempt to charge more than these fees is inappropriate.
- If you have a question about getting a SBA disaster loan, call 800-659-2955 or send an email to [email protected].
- If you have questions about other SBA lending products, call SBA’s Answer Desk at 800-827-5722 or send an email to [email protected].”
And, of course, the SBA also warns small business owners to be on the lookout for phishing schemes, where fraudsters send official-looking email in the hopes that an entrepreneur will reveal important private information. This private information includes passwords, Social Security Numbers, and the like.
Fortunately, there are ways to spot an SBA loan scam.
Inc’s Ways to Spot an SBA Loan Scam
Inc offers four helpful ways to determine if someone is trying to scam you as you apply for an SBA PPP loan (or any other SBA loan emerging from the COVID-19 situation).
1. Don’t Reveal Any Personal Information
Much like the SBA warns, scammers may try to contact your business and offer help getting loans – or even the loans themselves. That is, so long as you hand over your business credit card number or the like.
According to Inc:
“Scammers could use this information to apply for a loan on your behalf–and you’ll be on the hook for paying it back. Also note, you only get one opportunity to apply for a loan, according to Ami Kassar, founder and CEO of MultiFunding, a small-business loan adviser based in Ambler, Pennsylvania.
If you do receive any notices like this, the Treasury Department recommends contacting the FBI.”
2. Don’t Pay for the Privilege of Applying
The CARES Act is set up in such a way that there are no closing costs. You won’t have to pay any application or package fees, either. So if someone claims they can get you a loan faster if you just cross their palm with silver – run the other way.
3. Don’t Work with Unknown Lenders
The SBA is relaxing a number of its rules. But even though a lender does not have to be a preferred lender, they do need to have applied for preferred lender status. So, as Inc. suggests, try working with your local bank first. That is, a bank with which you already have a relationship.
It will be a lot more difficult for a local bank with a brick and mortar presence to skip town than an online lender you have never heard of before.
But can online lenders participate? At the time of writing of this blog post, not yet. But they’re trying.
Online FinTech Lenders Are Looking to Be a Part of the Federal Funding Bailout
Recently, 22 fintech lenders sent a letter asking to be allowed to take part in the Paycheck Protection Program. They wrote to Majority Leader McConnell, Minority Leader Schumer, Speaker Pelosi and Minority Leader McCarthy, saying:
“We seek no gain from this crisis. Our only aim is to protect the millions of small businesses that we are proud to call our customers.”
The signatories to the letter were online lenders we’ve heard of and even reviewed before.
Signatories Already Reviewed by Credit Suite
Signatories We Haven’t Reviewed Yet – But Probably Will!
Biz2Credit is based in New York City. BFS Capital is another New York City-based fintech company. Enova International is based in Chicago. FiveStars supports local businesses. FundRocket is based in San Francisco.
GetUpside is an app company working with businesses and consumers. They’re in Washington, DC. Homebase is another San Francisco-based company. They make time management and scheduling software. LendingTree is a marketplace for small business loans, mortgages, and more. They are based in Charlotte.
Middesk provides business analysis. Plaid helps companies with business finance management. SevenRooms provides data-driven operations and marketing for restaurateurs. Signpost works with small businesses on their customer communications, brand reputations, and marketing outreach. Thanx provides CRM software to restaurants.
Veem provides a payment network system. They work internationally, so if your business does international commerce, they can help you get paid by folks in Lithuania who owe your business money. Wisely provides a fully integrated host stand, marketing automation, and guest sentiment software suite for growing restaurant brands. And Womply provides CRM and reputation management software.
4. Don’t Buy into Fast Promises
Unfortunately, there are a ton of predatory lenders out there. Avoid falling prey to them!
According to Inc.:
“If a company or person is telling you they can get you an SBA loan under the new PPP in a matter of hours, steer clear. Lenders are still waiting on guidance for how to process these loans. The application is expected to be available starting April 3.”
And remember to always verify what you read with information directly from the government or a reputable company. Don’t believe it unless and until you can verify.
Federal Funding and Federal Oversight
On April 2, 2020, Speaker of the House Nancy Pelosi announced the formation of a committee to oversee the Trump Administration’s handling of the $2 trillion relief package. And that includes the SBA’s Paycheck Protection Program. This committee is actually concerned with the novel coronavirus itself. Its oversight function exists alongside a function to check the latest science to be sure responses are logical and can save the most lives.
Per CNBC, Speaker Pelosi “said the committee ‘will root out waste, fraud and abuse’ and ‘protect against price-gouging, profiteering and political favoritism.’”
CNBC further notes, “Congress [has] added an inspector general and congressional oversight posts to monitor how Treasury Secretary Steven Mnuchin uses the money. The law also includes limits on stock buybacks, dividends and executive compensation for companies that receive taxpayer bailout money. “
But will this oversight be enough? The jury is still out.
Federal Funding, COVID-19, and Scams: Takeaways
As this situation continues to unfold, we will no doubt see changes. Nuances and details are likely to need updating. So be sure to check out our business loan qualifier form page as we will be updating it with the latest. Once we know it, you will.
We’re all in this together. And we hope you can steer clear of scams and cheats.