Avoid Credit/Loan Scams
Avoid illegal scams, con-artists and fraudulent strategies provided by so-called "Business Credit Companies".
Here are a few of these that you should avoid.
- “I’ll report a line of credit on your business to the credit bureaus.” There are those that think they can report a trade line to a business credit bureau or use a friend to be trade reference on an application for credit. In fact, this is fraud, unless there really was a trade line extended, services rendered and payments made.
- “I can get you any amount of bank lines of credit you need.” First off, you have to have a good personal credit score of 680 or better in most cases to even be looked at with a company. Second, those that say they can get you any amount will likely tell you have to fill out a credit application or do it for you. When they do, they likely are telling you what kind of revenue you need to get approved. They try to say it’s legal because you are just providing “projections for the year”. However in most cases the applications ask for last years annual revenue and even if they asked for projections you need to be able to back up the figure you wrote down. If you said you projected $5,000,000 in revenue and you only had $50,000 there is going to be problems. Writing in false information to a credit application is fraud. There have been cases of individuals receiving 6 year prison sentences for falsifying credit applications.
- “I have a $1,000,000 line of credit I will sell you for $10,000.” This is a popular one believe it or not. There are companies that say they will give you a million dollar line of credit when you pay them a certain amount of money, typically 1%-5% of the credit line. Then they report that trade line to the business credit bureaus. This helps your credit report because no one wants to be the first to grant you a high credit limit. However if someone else has and you have paid on time they are much more willing. So by using this strategy, you have a trade line that you never get access to that reports to the bureaus. Yes, you never get access to the line. They will tell you that there is a deposit held in an offshore account and the money really is there. Even if they did (highly unlikely) have the money in an account, you never get to use it so it’s not a true credit line. Thus, you have paid someone to place a fraudulent trade reference on your report. Now you have committed fraud.
- “I can change your D&B and / or Experian report, no matter what’s on it.” I have seen this one too many times. The only way they are able to make this happen is that they have someone on the inside of one of the credit bureaus who they are paying on the side to change your report. For starters, I don’t think I even need to mention that this is a crime, but secondly even if the negative items are removed, most of the time they are reported every month and will show up again in 30 days.
- Build business credit overnight. No matter what you think or anyone else tells you, you need to take your time in building business credit if you want to build a long term company. An overnight approach is not a long term solution. Those that say they can get you credit quickly or a credit score really fast, are not looking out for your best interests. You have to take your company through a compliance check before you do anything to build your business credit. Compliance is a detailed search on your business to find any red flags that would cause a lender to decline your application or consider you or your company fraudulent and put you in the “No-Credit” list. Even if you are not fraudulent the chances of ending up in the “No-Credit” list or considered fraudulent is high if you haven’t done a compliance check. We have seen companies flagged high-risk by business credit bureaus and in turn have credit lines closed for simple reasons such as: not having a business license, another company with a similar name was flagged high-risk, an officer of another company that was high-risk had the same name, the phone number wasn’t listed with directory assistance and so many other, what appear to be, frivolous circumstances.
- Never use personal credit ever again, now that you have business credit. Sorry, not going to happen. Although we work with our clients to lower the amount of use of their personal credit, there are still instances from time to time that require a check on your personal credit score. This does not mean that it has to show up on your personal credit report however. Business Credit Services has been able to work with clients to build over $600,000 in unsecured lines of credit, other trade credit, leases and more with some of those lines requiring a personal credit check or guarantee but NONE of the credit showed on their personal credit reports. That has a tremendous amount of value to any business owner. So don’t ignore your personal credit, continue to do what you can do build your score.
- “CD Deposit Program”. Buy a deposit that shows on your balance sheet to use as collateral for a loan. Again, I’m not sure how anyone can offer this program and feel good about them selves. The program is meant to provide a CD for a specific amount (example: $100,000) and you pay $2,500 for that CD. Someone actually buys the CD in your company name, that you can’t touch or get access to in order for you to be able to add it to your balance sheet as an asset. Then you use that asset as collateral to obtain a loan. The problem with this, is that there is another entry that has to be made. It’s also a liability because it’s paid back. You don’t get the $100,000. So if the $100,000 asset has a $100,000 liability what bank or lender would loan against it, unless you were told not to put the liability on your balance sheet, which is what many of these companies tell you to do. If you follow their recommendation and get a loan using the CD for collateral you are committing fraud.
- Buy a corporation with credit already attached. Be very careful with this one. There are companies that offer Aged Corporations that already have credit established. They sell these for a large premium. In some cases $35,000 for a two year aged with credit. The problem with this is that the credit bureaus will likely wipe out any credit ratings or scores when ownership, location and phone numbers change for the business.
- Build millions of dollars in credit. There are companies that teach you ways to scam creditors by filling out applications a certain way, faxing them in instead of submitting online or via mail, using inflated revenue figures and much more. The goal of these companies is to tell you they can show you how to get millions in credit lines, which we rarely if ever see happen. Then they explain that the credit isn’t yours, it’s the companies so don’t worry about paying it back because you can set up a new corporation. This is obvious fraud. In addition, I believe business owners need to focus their priorities in this one: #1 Revenue, #2 Improving Quality of Product or Service, #3 Reducing Expenses, and #4 Everything Else. Everything else includes obtaining financing and credit to grow the business. That is all the credit should be used for, to grow the business and used only when needed.
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