This smells like a rat

By John Paul  - weekly email deliverer
Every entrepreneur is likely to encounter this threat at some point on their journey to raise capital.

And in today’s cyber world of identity theft, online fraud, and digital hijacking, you’ll need to pay close attention to the points in today’s lesson.

I got an email from one of my readers who received an offer from a potential investor.

Ordinarily, this should be good news.

But the nature of the investment and the terms of the deal smell like a rat.

Here’s an excerpt from the email I received from Lester who’s based in Mozambique.

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Dear John-Paul,

I have been looking for investors to invest in my freight forwarding company since last year.

Eventually, I learned of a certain company called Invest Mutual Finance that claims to give loans from 2,000 pounds up to 9,000,000 pounds to businesses around the world.

First, I tried to investigate the company on Google, but could not find anything. However I decided to apply for a loan of 100,000 pounds anyway.

My application was accepted and they requested me to send them a passport size photo, copies of my bank statement of 3 months, my passport, and company registration documents.

I have not sent those documents as I am scared that this might be a scam. First, the amount they granted and their terms of payment are just too good to be true, so the offer scared me off.

Moreover, the company (as big as they claim to be) still uses a Gmail account and don’t have a website whatsoever.

Maybe I am being skeptical? Please advise.

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First off, thank you Lester for sharing this experience with everyone so we can learn.

Your suspicion of a scam is indeed correct.

But to help everyone understand the sophistication of these scams, I’d like to discuss some specific points.

However, first, let me praise the things you did right.

The Google check was a good move

In today’s world, if a person or company can’t be found on the Google search engine, it’s as if they don’t exist in real life.

At the minimum, somebody should have mentioned their name in a social media post, or in the comments section of a blog or online forum.

So, if a potential investor or investment firm doesn’t appear in Google’s search results, you should smell a rat.

No website or corporate email = red flag

If he/she is a private investor, at least there should be a LinkedIn profile you can look at.

But when an investment firm that gives loans to businesses around the world doesn’t have a website, you should smell a rat.

These days, for international businesses, a website is as good as a physical office address.

On top of that, websites are now cheap to own.

So, if an investment firm doesn’t have a website or uses a Gmail, Yahoo, Hotmail or other public email service, then they’re likely hiding something.

Now, let’s talk about the scam itself.

These fraudsters that disguise themselves as loan companies have a unique mode of operation.

They offer loans (and not equity) at very low interest rates and favourable payback terms.

The loan is the bait. It’s what gets people’s attention and sucks them in.

But to get the loan, the fraudsters make you go through some processing that makes you feel you’re going through a serious due diligence exercise.

They ask for official documents; usually photos, an ID, and company papers.

And more frequently these days, they ask for your bank statements.

Sending any of these documents is a big risk for two reasons.

First, having your photos and ID in the possession of criminals opens you up to identity theft, digital hijacking, and worse. Your image could be used to carry out other frauds, used to open fake social media accounts, etc.

Second, the financial information on your bank statement allows the criminals to size you up. That way, they know how much money they can skin from you.

And after you send your personal documents, they go in for the scam.

One way the scam could go is to ask you to pay a small amount of money upfront as a condition to get the loan.

This could be called due diligence fees, notary fees, an insurance premium, or some other name.

The fraudsters usually make sure that this amount is only a small fraction (maybe 1-5%) of the loan amount you’re asking for.

And when you compare $1,000 to $100,000, it just makes sense to pay the fees and get the loan.

And then after you pay the money (usually via Western Union, MoneyGram, or some other transfer service), they disappear.

You will never see a dime of the loan.

They stop responding to your emails and the scam is complete.

And to make extra bucks, they could go ahead to sell your ID and financial information on the dark net.

But why do these scams work?

I’ve seen a couple of smart people who actually fell for these loan investment scams.

And it’s not because they were stupid.

Ignorance is a common reason. Many people don’t know what to look for in a potential scam. Even simple things like a Google check, and checking for a website and corporate email can help.

Desperation is also another common reason. Entrepreneurs who are frustrated by lack of capital can be blindsided by juicy loan offers that could save their business.

However, in my opinion, deflection is the big reason these scams work so well. Because they ask you for important documents and only ask for a ‘small’ fee, most people don’t smell a rat.

The victims often think: "If this is a scam, why would somebody go through all this hassle just to scam me of $500 or $1,000."

The answer is simple:

It’s a volume business for the criminals.

You’re not the only victim they’re working on. There are probably hundreds of you out there. And on the internet, the potential market is huge.

So, to wrap up

If you get a loan offer from an investor you don’t know, and he/she is interested in giving you a big loan without any form of collateral, you should smell a rat.

Loans without collateral are VERY risky for investors, especially when they don't know you personally. That's why banks usually insist on collateral.

And if the investor or company doesn't show up online or in a Google search, you should smell a rat.

If they claim to be a large corporate or an international firm but they don’t have a website, or they use public email services like Gmail, Yahoo or others, you should smell a rat.

And finally, if they’re asking you to pay something upfront for the loan, you should smell a rat.

If any fees have to be paid at all, it should either be deducted from the loan amount, or paid after you receive the loan, but not before.