Protect Your Small Business: Rising Wave of PPP Loan Fraud Targeting Business Owners

By Elena Gupta, Asheville Regional Center Director, SBTDC

Fraudulent phone calls and emails concerning PPP loans have become a serious issue in 2024, with scammers increasingly using sophisticated methods to deceive small business owners. These scams typically involve false claims related to contempt orders or legal actions, creating a sense of fear and urgency to manipulate potential victims into providing personal information or making payments. 

Examples of payment demands may include very specific instructions, such as a detailed request to go to a specific cryptocurrency ATM and make a purchase. Or they can be as simple as instructions to bring bail money to a particular location. 

Every business owner needs to understand the nature of these new PPP scams and recognize their warning signs to protect themselves and their small business.

Nature of the PPP Loan Scam

Scammers often pose as government officials, court staff, or law enforcement officers, contacting individuals or businesses via telephone or email under the pretense of unresolved issues related to PPP loans. They may claim that the recipient has failed to comply with certain requirements, such as attending a court hearing or submitting additional documentation. These fraudulent communications frequently include threats of severe consequences, such as arrest, fines, or legal action, if the recipient does not immediately respond or take the demanded action.

Recognize the Signs: Common Signs of a Scam

1. Unsolicited Contact
   Victims receive unexpected calls or emails from individuals claiming to be government representatives. These contacts are typically out of the blue, catching the recipient off guard and making them more susceptible to manipulation.
2. Threatening Language
   The scammer often uses intimidating language, claiming that the victim is in “contempt of court” or has violated a legal order related to their PPP loan. They may threaten immediate arrest or financial penalties if the recipient does not comply.
3. Official-Looking Documents
   Scammers may send fake documents that appear to be official court orders, subpoenas, or other legal notices. These documents often include legal jargon, official seals, or signatures to create a sense of legitimacy.
4. Request for Immediate Action
   The victim is pressured to act quickly, often without time to verify the legitimacy of the claim. This might include providing personal information, making a payment, or even clicking on a suspicious link in an email.
5. Out-of-Context Communication
   Government agencies or courts do not typically communicate legal issues via phone calls or emails, especially not without prior notice. If you receive such communication without any prior context, it is likely a scam.
6. A Sense of Urgency and Pressure
   Legitimate authorities will not pressure you to take immediate action without giving you the opportunity to verify the situation. If the caller or email demands immediate payment or personal information, be suspicious.

PPP Loan Scam Attempt, a Real-Life Example

A local business partner from Asheville received a notice from the sheriff’s office indicating that one of them had failed to appear in court the previous day to respond to charges of obtaining a fraudulent PPP loan. The notice also informed them that a warrant had been issued for their arrest and that they were required to pay a $10,000 bail. In addition, specific instructions were received to obtain the bail money, deliver it to a designated address, and then only(!) report to the sheriff’s office. 

This story had a good ending. After the initial panic, the business partners were able to identify the fraudulent signs and avoid losing money. 

The impact of these scams can be devastating, both financially and emotionally. The victims, business owners, may lose substantial sums of money, have their personal information stolen, or experience significant stress due to the fear of legal repercussions. Small businesses, in particular, are very vulnerable, as they may not have the resources to recover from such fraud easily and might close their doors forever. 

How Can Small Business Owners Avoid Getting Scammed?

1. Carefully review the payment details.
   Is the payment traceable? Scammers often ask for payments via gift cards, wire transfers, or cryptocurrencies or, in some unsophisticated cases, deliver the money to a specific remote location. These methods are difficult to trace, making it easier for the scammer to disappear once the payment is made.

2. Be calm and review the source of information closely.
   Always verify the contact information provided in the communication. Scammers may use phone numbers or email addresses that appear similar to those of legitimate institutions but have slight alterations. Look for those red flags and engage a second pair of eyes, such as your accountant or even your relative.
   
3. Verify the legitimacy of the communication you’ve received.
   Always verify the legitimacy of any communication related to your PPP loan. Contact the relevant authorities directly using verified contact details, not those provided in the suspicious communication.
   
4. Report suspicious activity.
   If you receive a suspicious call or email, report it immediately to your local law enforcement, the FBI, or the Federal Trade Commission (FTC). This helps authorities track down and stop scammers.
   
5. Educate yourself and your employees.
   Make sure everyone in your organization is aware of these types of scams and knows how to recognize and report them.

6. If in doubt, immediately contact your SBTDC counselor for consultation.
   Do not wait until it’s too late and your business takes a serious blow to your cash flow.

Final Thoughts

In our highly-connected world, scammers look to take advantage of any opportunity they can to trick businesses out of their money. But by remaining vigilant, learning to recognize common scams, and verifying all requests, small businesses can avoid falling victim to PPP loan scams and other common schemes.