Study: Small Business Fraud on the Rise

Six in 10 lenders saw an increase in small and midsize business lending fraud over the past two years, according to a study from LexisNexis Risk Solutions, with an average increase of 7.3%. Twelve percent of lenders saw double-digit percentage increases in SMB lending fraud, and nonbank digital lenders were more likely to report increases in fraud. Over the past year, SMB lending fraud losses accounted for nearly 11% of overall losses.

SMB lending fraud includes several different types—bogus businesses, takeovers of business accounts, synthetic identity fraud and identity theft—that lenders reported seeing in combinations. Digital lenders were most likely to report seeing a fake business paired with a synthetic consumer or owner identity, while banks were most likely to observe a legitimate business combined with a synthetic ID.

About 17% of lenders said they typically identified SMB fraud at account origination, while 61% said they were most likely to identify it within a month. Twenty-one percent said they typically identified it after an account was charged off. Banks tended to rely on ID verification of SMBs and owners or representatives, as well as credit reports, to curb fraud. Banks with over $10 billion in assets were more likely to use business and consumer fraud analytics, while smaller depository institutions were more likely to use manual research to root out fraud.