Why Loan Scams Are Increasing

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How can entrepreneurs spot an advance fee loan scam and avoid it?

The request for a wire transfer should be a big giveaway. That's because once you wire money to someone, it's gone. You can't cancel it like a check or a credit-card charge. Never, ever, ever wire money to someone you don't know. The same is true with sending a cashier's check. Also, there's not usually a legitimate reason to pay money in advance for a loan. Fees and points typically get added on to the loan amount, so a request for money should be regarded suspiciously. And certainly don't enter your financial information on any Web site. Some of these sites include a Web form where they're asking you to fill in your bank account and Social Security number. That's another giveaway that something's wrong.

Before you do business with any company, check them out online with the BBB. You can also enter the company's name in an online search engine. Use quotes around the name and tack on the word "scam," then see what comes up. If this company is fraudulent, there may be complaints about it from other people who've been scammed.

We've written frequently (BusinessWeek, 2/27/08) about the "government grant" scam. Is there a resurgence of that one also?

Yes. In 2007, and so far in 2008, BBBs across the U.S. have received hundreds of complaints from small business owners who were burned by online offers about receiving government grant money to start their business. People tell us that they paid for help getting grants but never got help from anyone. Anyone who is looking for grant information can go to a legitimate site, www.Grants.gov, and there's no application fee. The information is out there, and the U.S. government does not request payment for any kind of application review or grant award process.

What other resources are available for business owners investigating credit offers to see if they are for real or not?

We have online tips about advance fee loan scams and guidance on getting legitimate loans from the U.S. Small Business Administration. We have also put together a tip sheet on grant scams.

Karen E. Klein is a business journalist who covers small-business issues for several national publications. She writes her Smart Answers column twice a week.