• People often lie about income, employment, visa status, and other details in small business loan applications.
  • Lying aims to create a favorable image for securing larger loan amounts.
  • Lying can lead to severe consequences, including denial, blacklisting, or legal penalties if caught.
  • It is recommended to be honest, take a reasonable loan, and avoid long-term negative impacts on small businesses.

When applying for any sort of position and or service, it can be tempting to lie in order to make yourself seem more qualified for the task at hand. The same can be said for when one applies for a small business loan. Although there might seem to be a lot to gain from lying on a small business loan application, one must ask the question, “What are the consequences for getting caught lying on a loan application?”  You might even find yourself wondering if it is worth it to lie after considering these consequences. Let’s start with the explanation of a what a small business loan is. If you already know, skip to the next section about how people lie on these kinds of applications.

Almost identical to personal loans and any other loan for that matter, owners of small business frequently ask lenders for money that they need in order to get their business up and running. Upon receiving the desired amount of money, the lender expects to be paid back the money plus whatever interest rate the two parties agreed upon. While the idea seems very elementary, things get confusing both easily and quickly when the actual application process begins.

How do People Lie on Small Business Loan Applications?

Income tax returns and income statements are when most of the corruption begins to occur when filling out business loan applications. Many people choose to state that they make a larger amount of money per year than they actually do for a multitude of reasons when it comes to applying for a loan. The main reason people lie is to portray an image that they are financially able to take out a large loan and pay it back without any problems.

To elaborate, larger loans give people a larger opportunity to put money towards their business. However, when loans are not paid back, it is almost always due to the lack of funds to pay back. Lenders are going to review the amount of income a potential customer makes a year in order to be certain they will be able to pay back whatever loan they may be taking out. If the potential borrower has a larger income, the lender is going to give them the option to take out a larger loan in turn. If someone needs a larger loan then what their income can allow, the obvious choice would be to lie about how much money they make.

People might also lie about their visa status in the United States so that they can get the loan they want without raising any red flags to the entity they are borrowing from. Although you might be renewing your immigration status in the future, you must be completely honest about your visa status at the time of applying for your loan. Lending institutions need to understand the entire situation before they decide to lend you money, including your immigration situation.

Here is a list of other things people lie about when applying for a small business loan:

  • False employment
  • The purpose of the loan
  • Undeclared children or spouse
  • Undeclared debts
  • Source of someone’s deposit
  • Value of assets

Lying about these things might help you get a larger loan amount but there is also the ugly side of getting caught. You might be wondering how banks catch you in the act before your loan is released to. Let’s get into that next.

How do People Get Caught Lying on a Loan Application?

All’s fun and games when you lie to get something you want until you get caught for your wrongdoings. Below, you will find various ways institutions can catch you in your lies when lying on a small business loan application.  

  • Red Flags: Banks and lenders processing system automatically identifies and flags high-risk applications
  • Hidden codes: Documents have hidden codes embedded in them to see if they have been edited.
  • Your supporting documents: If your supporting documents (tax returns, bank statements, and pay slips) show inconsistencies, banks will catch them.
  • Data sharing: Banks and lenders prevent fraud by working together to share information on their customers and known fraudsters.
What Happens When Business Owners Lie on Loan Applications
What Happens When Business Owners Lie on Loan Applications

What Happens if I Get Caught Lying on a Small Business Loan Application?

If your loan has not been advanced because you were caught for your lies, your application will be denied and your name will be blacklisted as a known fraudster. This will take away any chance you ever had of getting a loan in the future. In some cases, banks can even refer you to the police to get your name registered with law enforcement. If your loan has been settled and you get caught after money has been sent to you, the lending institution can “call in” the loan and tell you that you have 30 days to repay the loan or they will get law enforcement involved. Regardless of where you are at in your loan processing, lying doesn’t seem worth it.

The best case scenario is that you do not get caught right away and get sent the loan money you wanted for your small business. However, if you are unable to pay the loan back successfully, you can face major legal penalties. In fact, there are cases throughout history in which people unable to pay back on loans have gone to federal prison for many years for using false information to “steal money” they knew they were not going to pay back. Of course, these extremes are few and far between and usually only take place when massive amounts of money are involved. In the more common cases, if you do not pay back your loan, your credit score will take a major hit and you will find it almost impossible to take out another loan again.

It should also be noted that the action of lying on an application for a small business loan is relatively complex and hard to get away with due to the specific information that is needed.

CONSENSUS: You Should not Lie When Applying for a Small Business Loan

In the end, lying on a small business loan application is not a good idea. As far as recommendations go, it would be more effective if you were to take the largest loan you are able to obtain without lying on your application. This way, you are able to afford any financial losses that may take place. As your income increases through the results of this loan, you may go on to honestly take on larger loans. Simply put, it is a smarter business decision to take a reasonably sized loan without lying than it is to take a large loan and face severe consequences. There are many events in history that show the negative impacts on small businesses when they attempt to take a large loan they are unable to pay back. So be honest in your application for your business loan and there will be little to worry about afterward!

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