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July/August 2008 — Vol. 86, No. 6

SMALL BUSINESS

Looking for loans on the Web? Beware!

Small firms using the Web to find funding are increasingly victims of fraud

 

The Better Business Bureau (BBB) warns that business owners are becoming victims of fraud when turning to the Internet for loans and grants.

“While the nation is focused on the credit crunch and its effect on behemoths like Bear Stearns, the impact is also being felt by small businesses that are trying to stay afloat in hard times and are very susceptible to fraudulent loan offers,” says Steve Cox, BBB spokesman. “The Internet provides a perfect stage for fraud, because bad actors in the loan industry can easily portray a professional image that provides unsuspecting small-business owners with a false sense of trust.”

The following are examples of recent loan and grant offers BBB has identified as taking advantage of small-business owners nationwide:

 

Mediations LLC. The BBB serving Connecticut has received complaints from businesses across the U.S. stating that Mediations LLC (also doing business as Innovations Northeast LLC) is charging substantial upfront fees for construction loans but not delivering on the promised funds. Business owners paid fees ranging from $1,500 to as high as $26,000 and were required to pay by either wire transfer or cashier’s check. Thus far, complaints to BBB reveal losses totaling more than $110,000.

BBB advises: Business owners should never have to pay large sums of money upfront to receive loans, nor should owners wire payment for services, because they will have no way to get their money back if the creditor is not legitimate.

 

National Small Business Alliance. The BBB serving Los Angeles, Orange, Riverside and San Bernardino counties in California has received more than 1,100 complaints from 49 states and the District of Columbia about the National Small Business Alliance. Complainants state they were initially contacted by phone or e-mail and told they were preapproved for a credit line of $8,000 for a one-time membership fee of $99 to $149.

Despite what representatives of the company led complainants to believe, the “credit line” is not a small-business loan, but rather, collectively comprises coupons, discounts and offers made by participating vendors to purchase goods and services such as computers or travel arrangements using credit terms. Complainants say the company continues to deduct money from their bank account without permission and does not refund money as promised. 

The National Small Business Alliance currently has an “F” rating from BBB for its continued failure to resolve the pattern of deceptive marketing, misrepresentation, false advertising and unauthorized debits.

BBB advises: Small-business owners should be extremely cautious when providing bank account numbers and should insist on reviewing all details of any offer before making a buying decision and signing a contract. Prior to entering into an agreement, small-business owners can always check out a potential creditor’s, partner’s or vendor’s reliability report with BBB. These free reports are available at www.bbb.org.

 

Capital Funding Programs and many others. Since 2007, BBBs across the United States have received hundreds of complaints from small-business owners who were burned by online offers to receive government grant money. Using spam e-mails to drive traffic to legitimate-looking Web sites, fraudulent companies have promised to help business owners rake in thousands of dollars in government grants to start or expand their businesses. As part of the scheme, business owners have been required to pay several hundred dollars via wire or money order to the phony companies, but then never heard from them again. 

Capital Funding Programs, purportedly of Champlain, N.Y., is one such company. Since September 2007, 34 victims from 23 states have filed complaints with the BBB serving upstate New York after losing more than $400 each to this operation.

BBB advises: Business owners can research free information on government grant programs at the federal government Web site, www.grants.gov. If a company does qualify for a grant of some type, the U.S. government does not request payment as part of the application review or grant award process. 

Go to www.bbb.org for more information on the businesses mentioned above or additional advice on how small businesses can avoid being victims of fraud when seeking loans and grants.