Borrowers beware of cyber scams
I got a call last week from a source at
the national Better Business Bureau and she wanted to get the word out about how some small firms are getting scammed by Internet loan companies.
With banks tightening credit, small business owners are scrambling to find other sources for loans to build their business or just to keep their heads above water.
The Internet, as usual, is where a lot of you have turned.
Even the
Wall Street Journal did a story last week on how entrepreneurs are turning to online networks to get loans. I don’t blame you all. You have to find other sources, and it makes sense to turn to the Web.
But that doesn’t mean you throw all your common sense out of the window and turn into a cyber-space cadet.
This is how the scam works, according to the BBB’s Alison Preszler:
Companies offer loans no matter what a small business owner’s credit rating is at supposedly great rates, but then the scammer asks for an upfront fee to secure the loan and never actually pays out the loan.
Ding, ding, ding. Warning bell. You shouldn’t pay out money to borrow money.
“There’s been an increase in this kind of scam since October nationwide,” Preszler says, and she surmises it's because of the credit crunch.
A lot of complaints, she says, are coming out of Connecticut so I called
the Connecticut BBB and found out from them that one firm in particular has had some issues.
The company goes under the name Mediations LLC and has a Web site called
www.mediationsonline.net. Christen Horan, vice president of marketplace operations for the Connecticut BBB, says typically the complaints they see are consumers who get scammed by fly-by-night advance-fee-loan firms but it's unusual to see this go business-to-business.
She directed me to
Mediation's online BBB report:
“BBB has received complaints from businesses across the country stating that Mediations, LLC (also doing business as Innovations Northeast, LLC) is charging substanital up-front fees for construction loans, but not delivering on the loans.
Complaint information indicates that the up-front fees range from $1,500 to as high as $26,000, and are required to be paid by wire transfer or by cashiers check.”
Michael Petriccione, president of Mediations based in Hartford, Conn., says the fees are for appraisals and "interest reserves," and are legitimate. "This office is as squeaky clean as you get," he said.
Bottom line, small business owners have to do their homework, get recommendations, and make sure they're working with reputable loan companies.
And don't pay upfront fees, other than nominal processing fees that some conventional lenders may charge, in the $125 to $150 range, says Mike Stamler, a spokesman for the
U.S. Small Business Administration.
Somethings that's described "as a contingency fee, or a fee to reserve a larger amount of money or a substantial amount of earnest money [committment funds ahead of a down payment] bears the odor of scam," he explains.
And, he adds, “a small business should be very suspicious about any supposed lender that asks you to wire money or a cashier's check to secure a bigger loan. Legitimate commercial lenders just don't work that way. It's frankly not that different from what people used to call a pigeon drop scheme, where someone used to pretend to find a large sum of money in, say, a paper bag, and offer to split it with you if you provide some ‘earnest money.’ For that matter, it's pretty similar to the so-called
Nigerian e-mail schemes, where someone offers to share a fortune with you if you provide money first.”
“It sounds silly,” he adds, “but people do fall for this stuff.”
