When Free Turns to Fee: Avoiding Small Business Grant Scams

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Navigating the financial landscape that comes with running a small business is often difficult, and it’s made even more tough by the presence of certain potholes and mirages. One common scam that small business owners should be aware of is the grant scam.

How does a grant scam work? This type of scam is kept alive by a simple misdirection. Business owners will either stumble across or otherwise be made aware of a grant that their business is able to apply for, which, should they receive it, will give them what essentially amounts to free money. This should be the first logical red flag, but many business owners are willing to take the existence of grant programs at face value as fact. Once the business owners are sold on their grant applications, the next phase of the scam kicks in. You will be sold (or attempt to be sold) an expensive audit of your business plan, additional help filing your request, a one time fee, or some other service or perk that is claimed to have an effect on your chances of being selected for the grant in question. Once your money is in the pocket of the scammers, you will be lucky to never hear from them again. In a worst case scenario, your financial and business information could be stolen and abused or sold to a third party.

What should business owners do to protect themselves? Avoiding grant scams is simple, if you know what to look for. A grant scam relies on the good faith of business owners and their conviction that they are enrolling in a legitimate program in order to take advantage of them. Before you agree to fill out an application or accept any services related to a grant, you should do some quick initial research.

  • Find out which businesses, if any, have been awarded this grant in the past. You might want to do some searches for these businesses as well to verify that they also exist and are still operational.
  • Determine if the grant providing organization is accredited, registered as a government or non-profit organization, and if they have a physical address that makes sense. You might also want to follow up by searching for the names of employees who you speak with, as aliases involved with scams are often reported by victims in an effort to educate others.
  • Don’t provide financial information to any organization that you do not fully trust. If you can’t find anything about the company on the internet, or their is no record of anyone getting the grant in question in the past, then why should you trust them with any financial or proprietary business information? You shouldn’t.

If you have been the victim of a grant scam, there is still something you can do about it. While you may not see the money you lost again, you can still warn other business owners about the risks as well as the FTC and local watchdog agencies. You may feel embarrassed to have fallen victim to a scam, but you shouldn’t. It is better to move on and try and stop the scammers from getting to more victims than to do nothing and move on or feel upset and keep things secret out of shame.

Photo Credit to Steven Depolo on Flickr

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