Lending fraud among small to mid-sized businesses has increased by 6.9% since 2020. More than one-third of the growth in small and mid-size business lending fraud is attributed to the pandemic.
These were among the key findings of LexisNexis Risk Solutions’ Small and Midsize Business (SMB) Lending Fraud Study.
Rise in Small Business Loan Fraud Blamed on Pandemic
The survey provides important insight to the small business community about escalating fraud trends in the wake of the pandemic, and how hackers and cybercriminals are becoming progressively more sophisticated in their methods.
In light of the study’s findings, businesses need to be transparent, honest and careful when applying for business loans to ensure accuracy and transparency with funding.
Fraud is Evolving
Commenting on the research, Tom Hunt, director of business risk strategy at LexisNexis Risk Solutions said: “The digital channel environment is upon us and continues to grow as customers and prospects expect digital lending options, particularly during times that make in-person transactions more challenging.
“At the same time, fraud is evolving and has become more complex for lenders. Various risks can occur simultaneously with no single solution to solve for all of them. To be effective, fraud tools now need to authenticate both digital and physical criteria simultaneous with identity and transaction risk.”
Labor-Focused Spending Increased
The survey found that fraud prevention costs involving labor have increased since 2020. Due to the Paycheck Protection Program, lending has faced increased loan requests and has battled more fraud related to counterfeit business credentials and fake or stolen identities when applying for business loans.
Increase in Mobile Channels
The research points to how online and mobile channels continue to represent the largest share of lending transactions. Subsequently, fraud involving mobile channel applications for loans have witnessed an increase of at least 10%, particularly among fintechs and larger banks.
Layered Solutions Lessens Cost
Another key finding of the LexisNexis Risk Solutions’ Small and Midsize Business (SMB) Lending Fraud study is that lenders which layer more advanced identity authentication with advanced transaction/identity verification solutions, experienced a lower rate of increased fraud overall. As a result of layered solutions, the pandemic had less of a fraud impact on these institutions.
The COVID-19 pandemic has forced many lenders to make changes to their fraud detection and mitigation approaches. Small businesses applying for loans need to be mindful of the rise in loan fraud among SMBs and apply with care and transparency to avoid glitches and delays with applications.
This article, “Rise in Small Business Loan Fraud Blamed on Pandemic” was first published on Small Business Trends