Whether you’re just starting a business or growing it, businesses at all stages of operation eventually find themselves needing funding. But borrowing comes with a cost. Grants for small businesses are highly attractive because they don’t require repayment and have few strings attached to them. The issue with finding a grant is that there are thousands of them that are open for application, and finding the right ones becomes difficult. Scammers know of this difficulty and stress, and take advantage of business owners with official-looking grant scams that seem easy to obtain.
Getting caught up in a grant scam is easier than you think. They also cost you money that you can’t afford to lose. In this article, we’ll examine grant scams, what they look like, how they work, and how to protect yourself against them.
What are grant scams?
A grant scam looks like a real grant in that it claims to offer funding from a well-known provider. The scam is initiated with an email or phone call that looks like it came from a government agency, nonprofit, or a well-known provider of private grants. On the surface, these emails look like they came from a trusted source and make you less likely to question the contents and click on the link to apply.
As you go over the application, you’ll notice that it asks you to pay a fee to get the grant. This request for payment comes with a guarantee that you’ll be awarded the grant. This is your sign that you’ve landed in a grant scam because real grant providers never ask for fees or guarantee grant approval.
How to spot fake business grants
Spotting a fake business grant isn’t hard, but you do need to question the requests that the site is sending you. Here are some of the common red flags that you’re on a scam site:
- Request for fees to process, unlock, or release grant funding.
- Promises that the money is guaranteed or you’re already approved.
- Request for banking information or social security number at the beginning of the process.
- Misspelled agency names.
- Uses similar sounding words to official agencies.
- Pressure to keep the offer secret and to tell no one about it.
Small business grants are done in the open, and the decision-making process takes time. If you’re being asked to keep the grant a secret, or feel like you’re being rushed to provide sensitive information, you’re dealing with a grant scam.
Grant scams vs loan scams vs phishing: what’s the difference?
All of these scams are similar in that they’re fraudulent and try to get money from you. The difference between them is the method they use to get you to hand over sensitive information or money. These scams can use a single or multiple tactics on the same page, making it harder to figure out what you’re looking at.
Grant fraud
Grant frauds work by using language that claims it’s easy to get the money. They encourage you to apply and ask for an application fee. The application portals are fake, which means any financial information you provide is sent directly to the scammers.
Loan fraud
Loan fraud can look like a grant, but it’s actually a loan with predatory terms in the form of high interest, excessive fees, and difficult to repay in a timely manner. The scams use language such as guaranteed approval for people with bad credit, high pressure tactics to get you to apply, and unsolicited offers.
Phishing scams
A phishing scam consists of an email that looks like it comes from a legitimate organization. They use a vague threat to trick you into thinking you’re in financial trouble with the organization. The goal is to get you to click on a link in the email that takes you to the scammer’s website where you’re prompted to make a payment.
SBA grant scams: a common and dangerous tactic
The Small Business Administration (SBA) is frequently used to lure in an unsuspecting small business owner. The SBA is a trusted resource for small business grants and loans for a wide range of small businesses. This makes people drop their guard when they see the name of the agency on the page.
The key to identifying an SBA scam is the fact the agency never sends out a solicitation for funding via email, texts, or social media. Businesses seeking a grant from the SBA are required to go to the SBA website and seek out the appropriate application for funding.
How to spot an SBA scam
Look for these signs before you click on the apply button:
- A message that says you can get approved for a grant without an application.
- Payment or fee request to get the SBA funds “released.”
- Contact from someone claiming to be an SBA “representative.”
Always check the URL of the link in the email. All SBA funding programs have a .gov extension on their URLs. If you see a .com, .org, .net, or any other extension, it’s a scam site.
Facebook grant scams and social media traps
Scammers use Facebook and other social media sites to attract unwitting victims. They create pages or groups with names that sound like they’re agents who are offering real grants, and have their associates post claims that they got these grants. Scammers will also directly message users with a promise of guaranteed approval.
Some of the tactics to convince you that the grant is real include fake screenshots, a request to go off-platform for further conversation, and high pressure language to get you to apply. Social media platforms are popular places for scammers to get started offering grant scams. This is due to the fact that there’s little to no moderation of posts, and no one checks the legitimacy of a poster.
Why small businesses are especially vulnerable
It’s tough to weather periods of income shortfall as a small business owner. The stress is worse for someone who’s new to running a business and has little in the way of external guidance. This leads to a lack of clear-headed thinking that causes business owners to make mistakes and fall for a scam.
Scammers rely on someone acting in the heat of the moment to become a victim. They’re hoping that the person they’ve contacted is desperate enough to not pay attention and pay a fee in the hope of getting easy money.
How having a legitimate business setup helps you spot grant scams
Grants offered by a legitimate foundation ask for corporate structure information as part of the application. The information they may ask for includes:
- Legal business name
- EIN
- Proof of corporate registration with the state
- Business is in good standing
- Business plan
- Bank statements
- Mission statement
Scammers tend to skip this step, preferring to use informal communication, pressure a victim into complying quickly, request that the payment is made through non-traditional methods, or ask for sensitive information. This makes it easier to spot a grant scam because the scammer doesn’t verify an applicant for eligibility.
Getting a grant from a legitimate foundation takes time. This is because the foundation has an open period for accepting grants, screens applicants, then awards a grant after reviewing the reasons why a business is applying in the first place.
Setting up a corporate structure, like creating an LLC for a new business, helps entrepreneurs avoid getting grant scammed, while making it easier to apply for legitimate grants. Using a service like Tailor Brands for the creation of a corporate structure ensures the new entity is formed and filed properly. You can open your doors for business and apply for legitimate grants with your new corporation.
How to protect your business from grant scams
You can protect yourself from a grant scam by investigating the offer first. Take the following actions before moving forward:
- Check the official website of a foundation to find out if they offer a grant, and their conditions for applying.
- Never pay a fee to apply for a grant, as legitimate foundations don’t charge you to apply.
- Look at the URL for the grant and click away if it doesn’t match the official site.
- Don’t provide sensitive information on a website that lacks secure portals.
- Walk away, delete the email, and close the browser if you feel something is wrong.
Conclusion
Grant scams are everywhere, but you can avoid falling for them with a little bit of caution. Don’t let your excitement overtake you, slow down and read the email for signs of a scam, and close the page if you’re not certain. You can always search for the name of the organization to learn more about their grant program.
A little diligence and knowledge goes a long way toward avoiding getting scammed out of your money. With a little practice, you’ll find yourself automatically deleting the emails, voicemails, and texts without a second thought.