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Serving members worldwide since 1935.
Peter BenjaminWritten by:
Lynn M. English
Lafayette Federal Credit Union
Senior Vice President, Risk Management

At the onset of the Coronavirus pandemic, no one could have predicted the long-term economic impact that would result from it. After social distancing and business closure mandates took effect, the outlook for some small businesses became more dire, at least in the short term.

To mitigate the impact of the pandemic on vulnerable small businesses, the federal government sought ways to provide relief. One way was to expand the U.S. Small Business AdministrationOpens in New Window (SBA) Disaster Loan AssistanceOpens in New Window program with provisions in the CARES Act, the largest economic stimulus bill to be passed in response to the pandemic.

Unfortunately, the expansion of SBA disaster loans resulted in widespread fraud — in the form of defrauding the SBA loan assistance program itself, and in the scamming of business owners seeking loan assistance. Although government programs have always been somewhat vulnerable to fraud, the emergency nature of the COVID-19 pandemic exacerbated the prevalence of SBA disaster loan scams.


What Is an SBA Disaster Loan?

The SBA offers a disaster assistance program to small businesses, nonprofits, homeowners, and renters who live in regions that have been affected by declared disasters. To assist those in need, the SBA offers low-interest loans to eligible applicants, so that they can continue operations and/or making debt payments as needed.

The SBA has ended some COVID-19 assistance provisions, such as the Paycheck Protection Program (PPP), but is still extending assistance in other ways, including the COVID-19 Economic Injury Disaster Loan (EIDL).

Additionally, the SBA continues to offer disaster relief loans to businesses, nonprofits, homeowners, and renters experiencing other disasters such as hurricanes, severe storms and flooding, and wildfires. Even though not as many people are specifically seeking COVID-related loans, scammers are still actively targeting victims of other disasters seeking economic relief.

Types of SBA Disaster Loan Fraud

Unfortunately, more than one type of SBA disaster loan fraud exists, so would-be victims can be targeted from several angles. However, being educated on the topic can go a long way in terms of prevention. Understanding the different types of loan scams can help to ensure that you don’t become a victim.

Grant Fraud

Grant fraud scammers may ask for your bank account information so that they can deposit "grant money” for you to use to pay for upfront fees. But instead of depositing money, they’ll usually use the information you provide to steal funds directly from your account. Alternatively, they may ask you to purchase gift cards and/or initiate a wire transfer to pay for those "upfront grant fees.”

These scammers might also solicit personally identifiable information (such as Social Security numbers) to lure victims into finding out if they’re "qualified” for a grant. Instead of using your information to determine if you’re qualified for a grant, the scammers will use your information to steal your identity.

Scammers who target organizations applying for grants do their best to be convincing. If you’re being solicited to apply for grants from the SBA, beware; the SBA does not provide grants to small businesses but instead guarantees payment to lenders who provide loans to small businesses. This is why disaster relief loans are referred to as "SBA-backed loans.”

Loan Soliciting

Similarly, if someone reaches out to you promising to get you approved for an SBA loan, it may be a scam. Scammers may pose as an SBA loan broker and attempt to require payment upfront to secure loan approval. Or, they may offer a high-interest rate "bridge” loan, so that you can get your money now and pay them back later (once you’ve been approved for an SBA loan).

It’s important to know that SBA regulates disaster loan brokers and limits the amount of interest they can charge to borrowers. For example, a disaster loan broker can charge no more than 3% interest on a loan balance of $50,000 or less. They cannot charge any more than 2% on loans between $50,000 and $1,000,000, and even less if the loan amount is above $1,000,000. If a "broker” attempts to charge you a higher interest rate, they may be a scammer.

Similar to grant programs, government organizations (including the SBA) do not reach out to potential applicants that apply for 7(a) or disaster loans.

Phishing Scams

Phishing scams are a type of fraud that occurs via email. Phishing scammers pose as official organizations or individuals in an attempt to trick victims into sharing personally identifiable information, which may include your full name, Social Security number, bank or credit card account information, driver’s license number, and more.

Alternatively, some phishers attempt to get victims to click on links or attachments that are actually ransomware or malware. In an attempt to appear legitimate, some scammers even use the SBA logo or an email domain that is similar to the one used by the SBA (@sba.gov) to trick vulnerable loan applicants into sharing personally identifiable information.

How to Recognize Disaster Loan Fraud

There are several ways to recognize this type of fraud. Be on the lookout for any of the following red flags to protect yourself or your small business from falling victim.

Beware of Requests for Payment

If you’re applying for an SBA disaster relief loan, you will never be asked for an upfront payment or for payment to cover any type of fee. Government agencies and employees do not charge fees to individuals or businesses seeking financial assistance. If an SBA representative asks you for an initial payment, they are likely a scammer.

Beware of Communication From Third-Party Platforms

If someone posing as an SBA representative is contacting you from a third-party platform (such as a broker’s site or a partner lending organization), this is a red flag. According to their website, the SBA will never use a third-party platform to actively collect personally identifiable information or follow public users proactively without a waiver. You will never be asked to enter personal information into a third-party site on behalf of the SBA.

Check the Email Domain

Additionally, SBA representatives will only use emails with the domain @sba.gov. The domain should not include any additional words, letters, or numbers. Additionally, the presence of an SBA logo does not guarantee that the communication is actually from an SBA representative—logos can easily be downloaded or copied by almost anyone.

Reference Your Loan Application Number

Your loan application number will stay the same throughout your entire loan application process. If someone communicates with you via email and includes your loan application number, you should always verify that the number on the email matches up with your original loan application number. You can obtain your application number on any physical documents you’ve received or by logging into your SBA Portal Account.

Protect Personally Identifiable Information

You should protect your personally identifiable information at all costs. In fact, you should consider your personal information as a personal asset that you own. Unless you’ve initiated the contact or you can validate the person you’re communicating with, you should not reveal your personal information.

Verify Emailed Information Against the SBA Website

If you’ve received unsolicited contact regarding a disaster loan or grant, do your research. Verify the information you’ve received against the information on the SBA website. If the information doesn’t match up or isn’t able to be located, this may be a scam.

What To Do If You've Fallen Victim to SBA Disaster Loan Fraud

If you believe you’ve fallen victim to SBA disaster loan fraud, there are steps you can take to protect yourself and your identity. If you’ve sent money to a scammer, alert your financial institution as soon as possible. The earlier you alert them, the more likely they’ll be able to halt a transaction or pursue action against the scammer who has defrauded you.

If you’ve revealed personally identifiable information to a scammer, take the following steps to protect your identity:

  • Alert your financial institution (bank, credit card company, credit union) if you’ve revealed sensitive account information.
  • Check your credit report. If you notice any unfamiliar items on your credit report, immediately alert the holder of the fraudulent debt that your identity has been compromised.
  • Report the incident(s) to each of the three credit bureaus (ExperianOpens in New Window, TransUnionOpens in New Window, and EquifaxOpens in New Window) so they can place a fraud alert on your credit file.
  • Freeze your credit to prevent the scammer from taking out any more debts in your name.
  • Check your bank statements and credit card statements for transactions you don’t recognize and report these to your financial institution(s).

You also should report the incident to the appropriate authorities. If you’ve been personally affected by financial loss or identity theft, you may want to consider filing a police report with local law enforcement.

Additionally, you should report any SBA-related fraud directly to the Office of Inspector GeneralOpens in New Window. If you do not want to submit an online complaint, you can also call the Office of Inspector General’s Hotline at 800-767-0385.

Finally, remember that online fraud can happen to anyone, especially to vulnerable individuals experiencing a life-altering disaster. It’s normal to feel ashamed or embarrassed if you’ve fallen victim to a scam, but there is nothing to be ashamed of. Discussing your experience can help to ease any feelings of shame or embarrassment, and may also alert others and prevent them from being a victim themselves.

Protect Your Identity by Partnering With Lafayette Federal

At Lafayette Federal Credit Union, we care about our members’ online and financial safety. We are here to help our members spot potential scams or abuse that could harm their financial wellbeing.

If you have concerns about a potential scam or believe you may be a victim to one, don’t be afraid to ask questions. Come into a branch or learn moreOpens in New Window about protecting your identity online at Lafayette Federal.

Not a Lafayette Federal member yet? You can become a member by completing an online membership applicationOpens in New Window.

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