Equipment Financing Scams: What Every Business Owner Must Know (video)

Getting scammed while trying to finance business equipment is more common than most entrepreneurs realize. The equipment financing industry operates with minimal oversight, creating opportunities for predatory lenders to exploit small business owners who need machinery, technology, or tools to grow.

The Fake Approval Scheme

One of the most damaging traps involves companies advertising unrealistically low interest rates—sometimes even negative rates—to hook prospects. Once you’re interested, they demand upfront payments: first month, last month, and documentation fees. Here’s the catch: they haven’t actually secured your approval yet.

Buried in the contract is language stating these fees become “earned income” for the company if you don’t complete the deal. When the real approval arrives with drastically worse terms (or doesn’t arrive at all), you’re out thousands of dollars with no recourse.

The solution? Never pay substantial fees before receiving a genuine, final approval. Legitimate finance companies earn commissions only when they deliver working financing arrangements.

Deposit Fraud and Fee Manipulation

Some operators simply collect deposits and vanish. Others use legitimate-looking operations to hide excessive fees within complex contracts. They might employ lengthy application questionnaires designed to find “errors” that justify keeping your money, or structure interim rent payments to charge you for months you never used.

Before sending any money, verify the company exists beyond a professional website. Check the Better Business Bureau ratings, search for online complaint patterns, and confirm they have a physical location with real staff. Demand written breakdowns of every fee before signing anything.

Lease Agreement Nightmares

Fair Market Value leases can become particularly problematic. These contracts often include automatic renewal clauses requiring written cancellation within a specific window before the lease ends—sometimes just 30 to 60 days. Miss that deadline while managing your busy operation, and your lease rolls over for another full year.

Business owners have reported paying $14,000 for laptops worth $2,000 because they didn’t catch the renewal deadline. Set calendar alerts for lease expiration dates and notification requirements. Ask explicitly about end-of-lease procedures and get written confirmation.

Protecting Your Business

Small business lending lacks robust regulation. Courts typically assume business owners should have read and understood their contracts, making legal recourse difficult and expensive. Since most small businesses can’t afford lawyers for every agreement, prevention becomes essential.

Work only with lenders who have established reputations. The best financing companies receive referrals from equipment dealers who trust them—and they can’t afford to maintain those relationships while running scams. Look for transparency: reputable lenders openly discuss both advantages and limitations of their products, and they’ll tell you when you’re not a good fit.

Ask direct questions: “What happens if I don’t proceed?” “When do you get paid?” “How do I end this lease?” Document all communications and keep copies of everything you sign.

Equipment financing should fuel business growth, not drain resources through deceptive practices. By recognizing these common scams and conducting thorough research before committing, you can secure fair financing terms that actually help your business succeed.