SMB lending fraud is growing, but there are ways financial institutions can protect themselves

SMB Lenders Are Losing Up to 6% Of Revenue Due to Fraud

Fraudsters are leveraging fake identities, synthetic identities, cyberattacks on account creation or identity spoofing for account takeovers.

Small and Mid-sized Business Lending Fraud Study Results


Fraudsters Are Targeting Small Business Lenders

Preventing SMB lending fraud

Small business lending fraud is a growing trend and it’s a costly trend. All types of lenders are affected – large banks, small banks, credit unions and digital lenders. 

  • Over the past 24 months small and mid-sized business (SMB) lenders have experienced a 7.3% increase in fraud
  • The increase in fraud was higher for larger banks (>$10B in assets at 8.6% and digital lenders at 8.2%)
  • Fraud losses as a percentage of revenues amount to 5.8% for digital lenders
  • For small banks and credit unions (<$10B in assets) fraud losses as a percentage of revenues amount to 4.5%

 Small business lenders have been committed to elevating customer experience, which is a good thing, but it also creates the perfect environment for fraud. Lenders are focusing on streamlining the loan process, but that can make it easier for fraudsters to cheat the system. There are some common profiles fraudsters are using that include combinations of legitimate and fake businesses and real and bogus business owners or consumers. 

Study findings show that smaller banks and credit unions (<$10B in assets) and digital lenders are hit harder by SMB lending fraud. As a percentage of revenues, they’ve experienced average fraud losses amounting to between 4.5% and 5.8% vs. 2.9% for larger banks (>$10B in assets). And, they’re likely to expect fraud levels to increase over the coming year.

Study results also show that organizations that reported that they’re more effective at identifying SMB lending fraud actually are more effective. They’ve not only largely prevented fraud increases over the past 24 months, but experience a lower level of fraud – 3.0% of annual revenues (vs. 5.0% among those that are reported as only somewhat effective at identifying SMB lending fraud).

Your approach to fraud mitigation is as important as the tools you use to support it. Firms that track fraud tend to be more effective at stopping it early than those that don’t. Lending firms need a holistic approach that tracks fraud by both payment and channel type. And since fraud occurs in different ways, this creates multiple endpoints and approaches that fraudsters can use to attack. They continue to test for the weakest links and where they can operate undetected. Knowing where they’ve been successful is important for plugging the gaps; but also knowing where they’ve tried and failed is important in order to maintain vigilance. 

Outsmarting the fraudsters starts with having the right toolset and a multi-layered fraud strategy that supports a 360-degree view into the business and the people associated with the business. 94% of the businesses in our study that were the most effective at preventing SMB lending fraud engage in special fraud prevention initiatives. 
Get the full results of our new SMB Lending Fraud study to see how your financial institution compares and how you can shore up any gaps you may have.

Complete the form to download

This information is for educational purposes only and does not guarantee the functionality or features of LexisNexis products identified. LexisNexis does not warrant this content is complete or error-free.