See the Big Picture of Small Business Lending Fraud


Small Business Lending Fraud is a Growing Risk

The results from the LexisNexis® Risk Solutions 2019 study of small and midsized business lending fraud reveal that fraud is a real threat and the impact to lenders can be high. But there are ways to fight back and reduce fraud in your organization.

Small business lenders are at the intersection of profitable growth and problematic fraud risks. Small and midsized business fraud is hitting this market with great fury and frequency.

  • Over the past 24 months lenders have experienced a 7.3% increase in SMB lending fraud
  • The increase was higher for larger banks at 8.6% and digital lenders at 8.2%
  • Fraud losses as a percentage of revenues amount to 5.8% for digital lenders and 4.5% for small banks and credit unions versus 2.9% for larger banks

Many factors are converging to create an ideal climate for fraud.

  • Higher scrutiny in consumer lending leads fraudsters to business lending
  • Increased lender focus on streamlining the loan process
  • A wealth of breached identity information
  • Small business fraud offers higher payouts than consumer fraud
  • The complexity of small business loans

Types of Attacks

With financial institutions successfully adopting effective methods to fight consumer lending fraud, fraudsters are moving on to small business lending fraud, whether it be through fake identities, synthetic identities, cyberattacks on account creation or identity spoofing for account takeover on existing accounts. Digital lenders are targeted by various types of lending fraud more often than others.

Cyberattacks on new small business account creations have grown 35% in the last six months and identity spoofing has grown 20%. Cybercriminals are creating fraudulent bank accounts or taking over existing accounts, which can be used to take out multiple loans. These risks are greater through the mobile channel, which experienced a 107% growth in account takeover attacks in the last six months.

This environment creates sizeable opportunities and advantages for fraudsters, and this complicates fraud defense strategies for lenders.

  • 49% of lenders feel small business fraud is more complex than consumer fraud
  • Only 43% of lenders think they are very effective at identifying small business lending fraud
  • 91% of lenders rank identifying small business fraud a key corporate priority

Lenders Fight Back

Notably, organizations that reported being stronger at identifying SMB lending fraud actually are more effective. Not only have these organizations largely prevented fraud increases over the past two years, but they also experience a lower level of fraud – 3.0% of annual revenues, compared to 5.0% for those organizations which have reported only being somewhat effective. More successful firms tend to be more effective at stopping fraud at the point of account origination or within the first month of the customer relationship using tools like business and consumer fraud analytics and SMB consortium information, to provide a more holistic view of the SMB entity and the individuals behind it.

A precise, multi-layered technology approach can strengthen fraud prevention.

  • Organizations devoting dedicated and unique resources to combatting fraud experience a lower percentage of fraud losses - 9.6% compared to 11.4% for lenders using the same resources
  • Small business lending fraud as a percentage of annual revenues is 2.3% for financial institutions using 6 or more fraud tools, which is significantly lower than for lenders using 3 or fewer fraud tools
  • Advanced technology tools increase the success of fraud prevention, including:
    • Small business entity ID verification
    • Small business owner verification
    • Business fraud analytics, and
    • Consumer fraud analytics

About the Study

The study surveyed 134 individuals with responsibility for making risk and fraud assessments or decisions for SMB customers and set out to better understand SMB lending fraud, specifically its volume, how it is being identified and tracked, the types of fraud experienced, what’s being done to combat it and if there are differences in SMB lending fraud based on the size or type of organization

LexisNexis® Risk Solutions can help you design a multi-layered fraud defense that balances critical business objectives with an optimal fraud prevention strategy.

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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. 

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