Small Business Scams

31 January 2022

COVID-19 dealt a big blow to America’s 30 million small businesses, and not just from mass shutdowns.

As the federal government earmarked hundreds of billions of dollars in loans to help small firms stay afloat, fraudsters unleashed a torrent of schemes to get at that money and otherwise exploit entrepreneurs in uncertain times.

The scam often starts with a call or email, purportedly from a source a business owner would ordinarily trust, like a local bank or the U.S. Small Business Administration (SBA), offering to facilitate federal help — for example, the Paycheck Protection Program and Economic Injury Disaster Loans that were part of the government’s coronavirus stimulus package.

The fraudsters pump you for information they say will speed you the money. They might even set up fake websites to collect your “application.” It’s all a ruse to get a quick payment, gain access to your bank account, harvest private data like Social Security numbers, or seed your company’s computer network with malware or ransomware.

Such tricks are nothing new. In a 2018 Better Business Bureau (BBB) study, nearly two-thirds of small businesses reported being targeted at least once by scammers in the previous three years, and more than 1 in 8 lost money or sensitive business information. Based on the survey data, the BBB estimated that fraud robs small firms of $7 billion a year. As with the pandemic, natural disasters bring scam artists out of the woodwork to prey on businesses seeking help to rebuild.

Scammers deploy many other tricks to go after small businesses. Here are some of the more common ones, according to the BBB and the Federal Trade Commission (FTC).

Fake invoices: Crooks send phony bills for products and services a business commonly uses, such as office supplies or web hosting, hoping the person responsible for paying invoices is too busy to notice the deception.

Impostors: Con artists pretending to be from government agencies or utility companies threaten legal action, loss of a business license or a power cutoff unless you cough up supposedly overdue taxes, bills or fees. Or they’ll insist you pay for posters on workplace rules that are available free from federal and state labor departments. 

Bogus brand-building: Targeting entrepreneurs eager to raise their profiles, fraudsters claim to be selling listings or ads in the Yellow Pages or another (often nonexistent) directory, or offer business coaching, market research or internet promotion services that turn out to be fake or worthless.

Reputation-fixing: Scammers promise, for a fee, to change negative reviews, boost scores on ratings sites and take other legally questionable steps to boost your business’s standing online.

Business email compromise: Cybercrooks posing as vendors or colleagues send phishing emails, typically to a company’s owner or someone who handles the books, urgently seeking a payment or information about the firm’s employees or accounts.

Small businesses also get targeted by fake check and tech support scams, phantom investors charging upfront fees or retainers to connect you with capital, and unscrupulous sales agents who offer cut-rate deals on equipment leasing or other services but bury onerous terms in the fine print or add them after the fact.

Warning Signs

  • A supposed SBA agent asks in an unsolicited call or email for business or financial data. The agency does not initiate contact with businesses about federal loans or grants.
  • A bank, lender or government official requests up-front payment to facilitate a loan.
  • A utility or government agency threatens dire consequences if you don’t make an immediate payment.
  • A salesperson from a supplier asks you to sign documents with key provisions left blank or missing, which they promise to fill in or send later.

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