How to Identify Red Flags for Lending Frauds
For the borrower simply looking for a loan to start a business, it can often be difficult to distinguish between legitimate lenders and nefarious, unethical ones. Several fraudulent companies can often operate under the guise of authenticity and make lofty promises to unsuspecting users. However, with these few simple steps, you can easily identify whether a lender is truly authentic or not:
- Several authentic-looking lenders might have advertisements and banners on display, but a quick web search can reveal that they do not even have a website. This can serve as a major red flag.
- Some fraudulent lenders can have apps available on the application store, and even a website listed in their description. However, it is still prudent to check whether the lending company or NBFC is registered with the Reserve Bank of India. One simple way is to check if they have a Reserve Bank of India's mobile-only Non-Banking Financial Company license on their website. The other way is to go to RBI’s website and look for the lender among the “List of Investment and Credit Companies (NBFC-ICC) registered with RBI”.
- Authorized lending companies are also required to have their CIN number (Company Identification Number) as well as their Certificate of Registration registered with the Reserve Bank of India. Make sure to check for these details before signing up with a lender.
- When it comes to lenders that are available solely on mobile applications, it is possible that they are not RBI-registered financial institutions themselves but rather partnering with one. In this case, it is advised to check the website of the financial institution that the lender app claims to be partnered with, and check if their claims are corroborated.
- It might also be a good idea to go through the reviews and experiences of others who have previously borrowed from the lender. A good place to start are the reviews left by users of the lending app on the application store but you can also look to other platforms for relevant feedback.
How to Protect You and Your Business From Frauds
Apart from looking out for these aforementioned red flags, there are a few other steps that can also help you and your business stay protected against lender frauds. Here are a few tips to keep in mind:
- If you are looking for business loans, you might run the risk of being targeted by frauds that aim to steal information related to your business. To avoid this, make sure that all your business computers and systems are protected by high-grade anti-virus and firewall software.
- Keep a lookout for whether the lender is pressuring you while being evasive about answering essential questions about the loan such as the business loan interest rate and various associated fees. An upstanding lender should be willing to offer you all such details upfront and intimate you about all hidden costs.
- It is also important to ensure that the lender is not demanding information that does not directly pertain to the nature of the business loan. It is common for most lenders to ask for your business plans and bank statements. But you should be wary of any invasive demands for your personal and financial information that is irrelevant to the loan being considered.