How a Fraud Alert Affects Your Application for Business Financing

Serious business owner

Applying (and getting approved!) for business financing is difficult enough, but when you have a red mark on your credit report, it’s even more arduous. There are many reasons a lender may turn down your loan application, but there’s one reason you may not expect: fraud.

The good news? It’s not impossible to find business financing, especially with a little bit of extra work and research. The bad news? It will be a little harder than it would be without the blemish on your record.

According to a study done in 2014, a whopping 66 percent of small businesses are victims each year and the typical affected organization loses about 5 percent of their annual revenue to fraud. And some business owners don’t even discover it until they run their credit report. Business identity theft could happen to any size business, and since small businesses don’t tend to have sophisticated security systems, they’re often even more vulnerable.

If you’re worried about fraud affecting your business financing application, here are a few tips.

First, do your best to avoid fraud in the first place

Of course, the easiest way to ensure fraud doesn’t tank your loan application is to take steps to prevent it in the first place. While falling victim to business fraud can’t be entirely avoided, there are a few things you can do to monitor your credit and protect yourself.

Monitor your credit

Even if you’re not currently in the market for business financing, it’s a good idea to set up credit monitoring services. Programs such as Nav will actively monitor both your personal and business credit for new accounts or suspicious activity and send you an instant notification if anything looks amiss.

Be careful about the details you share

Phishing, both through email and text, is one of the most common tricks used to score personal data from businesses. If you receive a text with an unfamiliar phone number or link—especially one that asks you to update your information—don’t share any personal information. The sender may be creating malware to gain access into your phone.

Skip the free public WiFi

It may be tempting to sign into that public WiFi, but most public networks don’t offer much security on mobile apps, so it’s much easier to steal your private info this way. If you do decide to use a public WiFi system, never do your online banking when connected—wait until you’re on a secure and private network.

How will fraud affect your business loan application?

Credit card issuers and credit reporting agencies are constantly monitoring your credit for suspicious activity. When something admiss shows up, credit agencies will issue a fraud alert to your credit report. This is Transunion, Experian, or Equifax telling lenders to be careful because the person applying for a new account might not be you.

If you’ve been a victim of fraud, you can also set up your own fraud alert. This is a way of telling the credit agencies and lenders to double check that the person applying for financing is actually you.

A slower process

When there is a fraud alert on your account, lenders are required to take extra steps to verify your loan application which can drastically slow down the approval process. In some cases, a fraud alert could prevent you from prequalifying for certain loan products. Though a fraud alert usually won’t bar you from getting loan approval overall, it’ll definitely make the process longer and more drawn out.

If you were the one to add a fraud alert to your account, you’re probably already prepared for the slowdown. Though it’s an extra step, it’s worth it to avoid additional red marks on your credit report. But what happens when you intentionally apply for a loan—only to have a lender deny it due to fraud concerns?

Remove a fraud alert

Whether you were the one to add the fraud alert or your (valid) application triggered an incorrect alert, you’ll want to reach out to the credit agencies and ask them, in writing, to remove it from your account. Of course, you want to be completely sure that nothing fishy is going on with your accounts, especially if you’ve been a victim of fraud in the past.

Fraud is a real concern when it comes to business financing. Not only can undetected fraud sink your credit score and make it incredibly difficult to land a loan, but a fraud alert will also slow down the entire process. If you have a fraud alert on your account, it’ll take a few extra steps and a bit more caution to land that loan—but it’s not impossible.

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Tags: Running a Business