4 Tips To Avoid Being Scammed When Raising Business Capital

Everyday another small business owner or want-to-be entrepreneur gets ripped off by some individual or pseudo-company that claims they can get them all the capital or business loans they need. All they have to do is pay an upfront fee, sit back and watch the money roll in.

But, it never works that way. Even if the company claiming they can raise money on your behalf thinks or acts legitimate, it just does not work out in the end. All the business owner ends up with is a lighter bank account - not more money.

In business, in your business, it is always up to you to make it a success and it is always your fault if it fails. Thus, it all comes down to what you do and what you don't do. If you get scammed, it is you fault - first and foremost - because you and only you could have avoided it.

To succeed, it comes down to what you are willing to do, how hard you are willing to work and how much you want to protect yourself and your business.

If you want to ensure that you are not paying unnecessary fees when raising capital, you have to work at it - just like everything else in business.

My first advice would be to raise the capital yourself. But, while that sounds easy it is not. Raising capital takes time and knowledge - things that many entrepreneurs just might not have.

If you feel that raising money is not your forte then it is OK to seek outside help - just beware that there are people out there that will try to take advantage of you.

Some will ask for upfront fees and disappear with your money or they might make promises that they just can't meet but through some technical issue or the way their agreement is written, they still get to keep your money (fee) even though they did not get you what you wanted.

To protect yourself from paying unnecessary fees or being scammed, here are four tips that you can use:

1. Upfront Fees. If the company or individual asks for an upfront fee that should be a big (BIG) red flag. Why should you pay them before they actually provide the service or capital they promise? Most true business loan brokers or similar individuals only get paid when your company receives money. Even the big players like investment banks only get paid after the fact.

   Therefore, if they demand an upfront fee - without any guarantee that you get your money back if they fail - use that as even more motivation to ensure that you completely research this company or individual.

   Do know, that while I do not like upfront fees, some legitimate companies will ask for money in the beginning to allow the requestor to self-select - saving the broker or company the time of not wasting their efforts with individual or business owners who have no chance of raising any capital - if you are unwilling to pay their fee, then you probably are not fundable and a complete waste of time.

   But, most of these companies or brokers will either return those funds if they fail to raise your desired amount or will apply that upfront fee to the overall cost of their service if they succeed.

2. Do Your Homework. I know it sounds cliché but it is so spot on. Find out who you are dealing with. While posting for opinions and information on forums and your social network might provide some insight, do know that those resources are not always the most accurate or objective.

   Most people that are in forums or have joined your social networks (those that you don't personally know) usually has some other motivation when answering posts. Thus, they may tell you want they think you want to hear just to try to win your favor or promote something else to their benefit.

   Even if you believe your network, much better to supplement that information with reviews from the experts of those that make it their business to provide the most beneficial reviews on businesses and their products.

   Places you can check for more information:

   • Better Business Bureau. Check either the location where the company you are researching is located or the national organization's website.

     The BBB offers a simple way to search for complaints and other information about the business you are researching.

   • Chamber of Commerce. Not where you are at but where the company you are researching is located. While the chamber of commerce is more about promoting local businesses, they also receive complaints about below board companies in their area.

   • Google Search. If you don't like Google, use your favorite search engine. One of the greatest benefits of the Internet is the amount of information that is out there about everything - even the company you are researching.

     And, if a business has done something good - it will be out there. Also, if a business has done something bad - it will really be out there.

     People are ten times more likely to file a complaint about a business when they feel slighted or ripped off then write a favorable post when the company either met or exceeded the person's expectations.

     Just know that you have to take everything you read with a grain of salt. No matter the business, there will be both positive and negative things said about them. Thus, you have to look at the totality of what is being said. If everything you read about a company is negative - walk away. But, if there are positive ratings as well as negative ratings, read them all and try to determine (from both sides) whether the postings are true reviews or if the poster just has a specific axe to grind or has some personal (monetary) ties to the company.

     Having reviewed thousands of businesses over the years, I can guarantee that if you read all the postings or reviews, you will be able to tell what is a legitimate rating and what is not - then use that knowledge (combined with your other research) to make your informed decision.

     Even if you don't find specific information on the company you are researching, you will come across other information related to scams, tricks and schemes - providing you that much more knowledge on what to look out for and who you should avoid.

   • Federal Trade Commission, State Consumer Affairs Office and State and County District Attorney's Offices. All of whom will have information on companies and individuals that have complaints or even lawsuits filed against them. If you find the name of the business you are researching here - don't walk away, run! Even the U.S. Postal Inspector Office will have relevant information on the individual or company if they have used mail to defraud others.

     Bottom line - use all of these resources if you can. Knowledge is power and this power can save you and your company a lot of time, money and headache.

3. Read Everything. If they provide you a contract or agreement - read it all! Many brokers will hide unfavorable language in the fine print or on back pages because they know, for the most part, that people do not read these contracts.

   Thus, they can stack the deck in their favor and in the end, take your money (either upfront or require that you pay them for their services) even if they don't find or raise a single penny for your company.

   Also look for other red flags like poor grammar or syntax errors in their writing - items that say they are not legitimate.

4. Use Your Gut. You just have to remember, if it sounds too good to be true it usually is. Know that the money you save is your own.

   If you read something or have doubts - like the broker does not provide their location information, asks you to send the fee to an overseas address, or pressures you to pay their fee before doing anything else, even sending along a contract - use your gut. If your internal compass is telling you to walk away - then walk away - there are always other resources to help you raise money - much better to wait a little bit longer and find a legitimate source then to get ripped off.

So, if you don't want to be scammed or pay unnecessary fees when raising capital for your business, follow these simple tips, get the business loan or capital you need and move your company onward and upward.

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