Email: contactus@precisa.in
Phone number: +91 98450 76647
  • Solutions
    • DSA Service
    • Forensic Investigation
    • Bank Statement Analysis
    • GSTR Analysis
    • Credit Report Analysis
    • Account Aggregator Integration
    • Anti-Money Laundering (AML) Analysis
  • APIs
  • Clients
  • About
  • Blog
  • Pricing
  • Sign In
Try Now
Digital Lending

Lender Awareness: Understanding the Most Common Business Loan Frauds and Scams

February 21, 2024 precisateam No comments yet
business loan frauds

Many lenders often decide to entice borrowers with the promise of instant loans. However, lenders’ urgency to disburse more loans and borrowers’ eagerness to receive them can have adverse consequences, especially if the former does not perform due diligence.

For example, lenders face the risk of engaging in loan fraud when dealing with dubious borrowers.

In 2023, for instance, the CBI filed a loan fraud case worth INR 80 crores against a business borrower who allegedly manipulated the books and financial statements to inflate sales, income, and profit.

On the other hand, lenders may be tempted to take shortcuts when accelerating growth, which can lead to hasty and inaccurate underwriting decisions.

Moreover, in several cases, bad players have indulged in loan scams, thus lowering customer trust, especially in newer digital lending platforms.

In this blog, we identify various business loan frauds and scams and how lenders can strengthen risk assessment and address issues proactively.

What Are Business Loan Frauds and Scams? 

Business loan frauds refer to a set of practices adopted by borrowers geared towards inflating their creditworthiness in the underwriting process, to secure a business from a lender.

On the other hand, scams are practices run by fraudulent businesses impersonating lenders to scam borrowers for their money.

Lenders run the risk of offering loans to fraudulent borrowers due to a lack of strong risk assessment and fraud detection capabilities. This is where technology can play a role in supporting businesses to scale sustainably and profitably.

However, let’s first understand the various types of business loan frauds and scams impacting the lending landscape.

Common Business Loan Frauds and Scams 

business loan frauds and scams

Here’s a brief look at common business loan frauds and scams lenders must be aware of:

1. Fraudulent Transactions

Sometimes, businesses execute certain types of transistor fractions to demonstrate they are generating revenues and average in cash flows.

For instance, a company may execute circular transactions, a scenario where it sells products to another company and purchases them back. Hence, no revenue or profit is generated. The companies may have shared ownership or have reached an agreement.

At times, multiple companies are involved. Hence, it is challenging for lenders to recognise such transactions.

2. Cases of Identity Fraud 

At times, a borrower may impersonate another individual without authorisation. Usually, they will impersonate someone with a good credit score, positive cash flow in their bank statements, and a similar-sounding name. The person being impersonated may even be deceased.

As lenders scale their businesses, verifying identities becomes more challenging without access to supportive technology.

3. Cases of Fake Documentation 

In some cases, borrowers may slip in fraudulent documents to help enhance their creditworthiness. For instance, they may fabricate Bank documents, signatures, and papers demonstrating ownership of assets.

These documents may display inflated revenues and profitability, interfering with accurate underwriting processes. It can be challenging to identify fake documentation, especially if it is presented with authentic documents.

4. Lender Scams 

While borrowers may engage in fraudulent activities to secure a loan, there are growing incidents of fraudsters impersonating lenders to scam borrowers.

Such players may demand upfront registration fees, offer instant loans with exceedingly high interest rates, demand unconventional payment methods, and offer incomplete documentation.

They may vanish once a borrower makes an upfront payment or pressures potential borrowers into a vulnerable financial position to take an instant loan that will prove expensive in the long term.

Such incidents reduce borrower trust, and while there is not much lenders can do about such cases, it helps to stay aware and introduce processes and systems that raise customer trust.

Impact of Business Loan Frauds

When lenders fall prey to business loan frauds and scams, they are impacted in several ways:

  • Rising cases of business loan fraud contribute to the growth of non-performing assets, which eat into the lender’s profitability. This is because lenders invest significant time and financial resources in the loan application and disbursal process.
  • Lenders will need to invest resources in the investigation of such fraudulent borrowers. This approach comes at a significant cost.
  • Lenders themselves may come under the radar of investigative agencies.
  • Lenders may need to pay certain penalties and fines if they do not comply with all the requirements of the Reserve Bank of India (RBI) requirements.
  • Too many cases of loan fraud can also impact the credibility of Orlando, which can raise concerns with existing and potential borrowers, which is bad for business.
  • If the ticket size of loan fraud gets too high, the lender may also need to shut down operations as running the business becomes unsustainable.

How to Avoid Common Business Loan Frauds

As this business attempts to scale, it becomes important for them to consider investing in technology that provides a holistic solution to the problem. As mentioned above, accelerated growth at the risk of inaccurate underwriting can lead to various consequences.

By leveraging an automated, AI-powered and cloud-based financial analysis solution, lenders can strengthen risk management as well as fraud detection capabilities.

  • It transforms the entire underwriting process end-to-end, leveraging AI, which can recognise irregular transaction patterns and minute distinguishing characteristics in fake documentation.
  • These tools can also do thorough cross-checks around borrower identity to nip potential identity theft in the bud.
  • Another benefit of such software is that it comes with the ability to cross-check revenues by cross-referencing revenue-related transactions with data pulled from a company’s account on the Goods & Services Tax Returns (GSTR) from the GST portal.

    This approach helps establish the authenticity of cash flows, especially among smaller businesses that lack a credit history.

The Takeaway 

Lenders can strengthen their risk assessment and fraud detection capabilities by leveraging superior financial analysis software. They can reduce the potential for business loan fraud.

The state-of-the-art technology enables lenders to run streamlined, efficient, and accurate underwriting operations, paving the way to build a profitable, sustainable business.

This is where Precisa’s advanced algorithms can help comprehensively detect potential loan fraud within minutes.

Presica’s comprehensive and seamless financial data analysis solution simplifies and speeds up the process through automation. The software provides actionable insights on a customisable dashboard, thus helping companies make informed business decisions.

Request a free demo today!

  • digital lending

Post navigation

Previous
Next

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Search

Categories

  • Bank Statement Analysis (122)
  • Credit Appraisal (35)
  • Digital Lending (120)
  • Fintech (81)
  • NBFC Software (3)
  • Uncategorized (1)
  • Understanding Precisa (17)

Recent posts

  • The͏ C͏re͏dit Bur͏e͏͏a͏u͏ & Bank Stateme͏͏nt Co͏͏mbi͏nation
    Credit Bureau & Bank Stateme͏͏nt: Ho͏w the Duo Reduc͏es Lending ͏͏R͏isk
  • RBI's Decision to Exclude Fintech Loans
    Understanding RBI’s Decision to Exclude Fintech-Sourced Loans from Default Coverage
  • Extract Hidden Insights from Consumer Credit Bureau Reports
    Beyond CIBIL Scores: Pulling Hidden Insights from Consumer Credit Bureau Report

Tags

account aggreagtor AI in Fintech API To Get Bank Transactions Automated Bank Statement Analysis Bank Bank Accounts Bank Financial Statement Analysis Bank Statement Analysis Bank Statement Analysis API Bank Statement Analysis Tools bnpl Case Study cash flow analysis co-lending Credit Appraisal Credit Appraisal Software Tools credit bureau Data Quality and Integrity digital lending due Due Diligence early embedded finance Financial Data Analysis Tools financial inclusion Financial Industry financial security financial startups Financial Statement Analysis Software fintech fintech companies fintech startups Fraud Investigation GST GSTR gstr analyzer Lenders loan management system Loan Rates money laundering MSME nbfc open banking precisa rbi

Continue reading

Bank Statement Verification
Bank Statement Analysis

Why Bank Statement Verification Fails: Human Element Behind Digital Lending Mistakes

May 31, 2025 precisateam No comments yet

Although technological advancements have revolutionised and streamlined bank statement verification, a few problems persist – fake or tampered bank statements. Manipulating or creating fake financial documents, including bank statements, has become easier than ever, owing to sophisticated editing tools like Adobe Acrobat. Today, around 5% of all financial documents submitted through online channels are tampered […]

Early warning signals in credit appraisal systems
Credit Appraisal

͏13 Bi͏ggest ͏Mist͏akes Lenders Mak͏e When Setting Up Early Warning Signals in Credit Appraisal Systems

May 16, 2025 precisateam No comments yet

In 2023, India’s gross non-performing assets (NPAs) stoo͏d at͏ o͏ver ₹6 lak͏h crore. Muc͏h ͏of͏ this is blamed ͏on late detection ͏of credit stress. Ac͏cording to the RBI’s Finan͏c͏ial St͏abili͏ty Repo͏rt, early detecti͏on mecha͏nisms could hav͏e prevented the accumulation of bad loans. Yet, many lenders s͏ti͏ll s͏truggl͏e with setting up robu͏st early warning signals in […]

Corporate Loan Document Hierarchy
Digital Lending

The Lender’s Guide to Corporate Loan Document Hierarchy: Critical Papers for Approval Decisions

May 12, 2025 precisateam No comments yet

India’s corporate credit ecosystem has seen remarkable growth in FY 2024–2025. Here are a few figures that support this trend: The total outstanding bank credit to business (including industry and services) increased to ₹82.73 lakh crore in March 2024, with a 16.3% year-on-year growth. Corporate loans to large enterprises grew by 7%. The retail loan […]

Mumbai

403, Mayuresh Chambers, 4th Floor, Sector 11, CBD Belapur, Navi Mumbai, Maharashtra 400614

https://g.co/kgs/buJcESj
Pune

Rachana Park, 3rd Floor,Atreya Society,
Off. Senapati Bapat Marg,Wadarvadi, Pune,
Maharashtra – 411016

Links
  • Cancellation Policy
  • Terms Of Use
  • Privacy Policy
Subscribe to our newsletter

Sign up for our weekly newsletter to get the latest news, updates & amazing offers delivered directly in your inbox.




    © All Rights Reserved • Precisa • MADE WITH ❤️ & ⚡ IN INDIA.