If you're trying to get a small-business loan and someone asks you for upfront fees, stop! You are about to be scammed, says Harold Lacy of The Money Institute, a Golden, Colorado, company that specializes in helping young companies understand business financing.
"Scam artists have different ways of asking for money," Lacy explains. "They might say `Our investors need a feasibility study' and charge you $500 or $1,000--something small to get you into the loop. Then they come back saying the investors need this and that--and charge you for all of it."
Lacy says scam artists often surround the money with international mystique by claiming the investors are in a foreign country in chaos and are trying to get their cash out of the country. Look out for:
- a request for good-faith deposits to demonstrate to mysterious foreign investors that you are serious about getting the loan.
- an ever-changing Caribbean area code, where you are charged for each minute on the line.
- offsetting deposits, where the scam artist takes out a legitimate loan from a small bank and makes payments on it. He or she markets this money as small-business loans, and when you call the bank to investigate, everything sounds legitimate. Scammers then ask for good-faith deposits or money for a feasibility study, but the loan is never made.
Whether scam artists call themselves business brokers, capital investors or investment bankers, Lacy says, "your first warning should be when you have to deal with a representative. You want to talk to the people making the decision."
To protect yourself, check with the Better Business Bureau, the state and local attorney general, and the Federal Trade Commission to see if there are complaints against the business or the individuals operating it. Also request references; legitimate businesses are happy to share their success stories.