Loan fraud among small and medium-sized businesses has increased by 6.9% since 2020. More than a third of the growth in small and medium-sized business loan fraud is attributed to the pandemic.
This is one of the key findings of the LexisNexis Risk Solutions Small and Medium Enterprise (SME) Loan Fraud Study.
Rise in small business loan fraud blamed on pandemic
The survey provides important insights to the small business community on escalating fraud trends as a result of the pandemic, and how hackers and cybercriminals are becoming increasingly sophisticated in their methods.
In light of the study’s findings, businesses should be transparent, honest, and careful when applying for business loans to ensure accuracy and transparency in funding.
Fraud is evolving
Commenting on the research, Tom Hunt, director of enterprise risk strategy at LexisNexis Risk Solutions, said: “The digital channel environment is upon us and continues to grow as customers and prospects expect to digital lending options, especially during times that make in-person transactions more difficult.
“At the same time, fraud is evolving and becoming more complex for lenders. Various risks can occur simultaneously without a single solution to solve for each of them. To be effective, fraud tools must now authenticate both digital and physical criteria along with identity and transaction risk.
Increase in labor-based spending
The survey found that labor fraud prevention costs have increased since 2020. Due to the Paycheck Protection Program, Loans have faced an increase in loan applications and have fought more fraud related to counterfeit business credentials and fake or stolen identities when applying for business loans.
Increase in mobile channels
The research shows how online and mobile channels continue to account for the largest share of loan transactions. Subsequently, fraud involving loan applications through the mobile channel has seen an increase of at least 10%, especially among fintechs and large banks.
Layered solutions reduce costs
Another key finding from the LexisNexis Risk Solutions Small and Medium Enterprise (SME) Loan Fraud Study is that lenders who combine more advanced identity authentication with advanced transaction and identity had a lower overall fraud rate. Thanks to layered solutions, the pandemic has had less of an impact on the fraud of these institutions.
The COVID-19 pandemic has forced many lenders to change their approaches to detecting and mitigating fraud. Small businesses applying for loans should be aware of the increase in loan fraud among SMEs and apply carefully and transparently to avoid problems and delays in applications.