Presented by KIS Finance
Scams targeting your hard-earned funds are becoming more prevalent across the UK. Approximately 42% of British adults have been targeted by one or more scams over the last year, and the proportion has only gotten worse amid the cost of living crisis.
In 2024, advance fee fraud is one of the fastest-growing types, representing 11% of all reported frauds in the UK. And property investors and developers are amongst the most vulnerable groups to this scam because of the magnitude of the sums involved.
Today, we discuss what this scam looks like, why it’s so effective, and what you can do to defend yourself against an advance fee development loan scam.
Advance fee fraud on development loans works much the same way as any other loan. The success of the scam hinges upon fraudsters using a borrower’s greed and desperation against them.
Fraudsters will pose as legitimate development loan providers, offering generous terms and little in the way of security to tempt people to take out a loan with them. Of course, the loan doesn’t exist, and you’ll never receive any money. After approval, the borrower will be asked to pay the fees associated with taking out the loan. Some of the excuses used include:
Although these fees seem legit, they’re not. Legitimate lenders will take their fees from the principal after disbursing the funds. You’ll never be asked to pay any fees prior to receiving your loan. However, many victims don’t realise this and send the requested amount. The fraudsters then disappear, leaving the victim out of pocket.
The results are often catastrophic, with developers and investors losing tens of thousands of pounds because of the immense loan sums involved.
Most advance fee fraud occurs online because of the ease of setting up a website for a seemingly legitimate lender. Approximately 65% of these scams originated online in 2023, and the number continues to grow.
However, not every scam looks the same. Some fraudsters create a lending brand out of thin air, incorporating fake websites, testimonials, and loan documents into the scheme. Others clone the platforms of legitimate lenders, with the only giveaway being a slight change to the domain name or a non-corporate email address.
In another variation of the scam, victims may actually receive a partial amount from their loan. However, the lender will claim there’s a problem and need another payment to process the remainder of the amount. Obviously, since the victim has already received part of the loan, they assume this is normal and send more money. Only then will the fraudsters disappear.
You might be wondering why it’s a scam that’s become so rampant, but it’s not just that it’s effective it’s that most of the fraudsters are beyond the UK’s jurisdiction. According to one estimate, three-quarters of all advance fee scams are conducted by overseas operators.
Advance fee fraud can be conducted using any financial product. Criminals often target property developers and investors for several reasons, including taking advantage of urgency and the high stakes involved.
Let’s go further into why this is such a problem for the development finance sector:
It also helps that most of the industry deals in unregulated loans, meaning there’s an enormous market in this niche sector. Many of these fraudsters can build a perfectly legitimate website within a day, making development finance one of the most lucrative targets for this kind of scam.
Understanding advance fee fraud when taking out a development loan is vital to protecting yourself from financial ruin.
Let’s use the example of Developer A, based in Manchester. He wants to secure a £2 million development loan to initiate a housing project.
Developer A searches for financing options and has already been rejected for a development loan through a traditional bank. He comes across a website on Google called Global Development Finance. The website is filled with brochures, borrower testimonials, and several case studies on previously funded projects.
Developer A contacts Global Development Finance and is offered a 70% loan-to- value loan with no personal guarantees and approval within seven days. After a day or two, Global Development Finance approves Developer A’s loan request.
However, they also make it clear that disbursement is conditional on paying £15,000 in processing fees and a £5,000 bond.
Moreover, Global Development Finance makes it clear these fees can’t be deducted from the loan principal, and the money must be sent within 48 hours, or the loan offer will be rescinded. Feeling desperate, Developer A sends £20,000 to a foreign bank account. They receive a loan agreement in return, which they sign, and then they wait a few days to receive their money.
Of course, Developer A never receives their money. In time, Global Development Finance vanishes, with their website also going down. Developer A realises they’ve been scammed out of £20,000.
Everything on the website, from the FCA license number to the high-profile projects, was fake or stolen from a legitimate lending platform.
So, what can we learn from the case of Developer A? Throughout the scam, several clear red flags could have prevented the scam from being pulled off. Here’s a rundown of the primary red flags Developer A should have spotted:
Advance fee fraud can take several forms and utilise multiple variations, but the red flags are nearly always the same. If it’s too good to be true, it probably is. Above all, the only real red flag you need to know about to thwart this scam is that a legitimate loan will never be conditional on sending any money upfront.
Despite this, countless developers fall for this scam every year because they don’t stop and think.
Protecting yourself from advance fee fraud is as simple as performing due diligence and not falling for the pressure tactics these criminals employ. Some basic checks only take a few minutes and unveil fake lenders instantly.
Advance fee fraud isn’t especially sophisticated. None of these fake lenders can withstand even the most basic scrutiny. These scams hinge on lenders not checking the credentials of the lenders they work with.
In short, use the FCA Register to verify the lender’s registration number. If they don’t have one of these numbers or the number is linked to another company's name, you’re almost certainly getting scammed. Likewise, no genuine lender will ever ask you to send any fees upfront. Instead, these fees are deducted from the final loan amount.
Some may suggest looking up reviews for lenders to determine whether they’re real, but this method isn’t as reliable as you think. These operations often build up stocks of fake reviews posted on popular online platforms to give the impression of legitimacy. By the time the fraudulent reviews are discovered, they’ve already disappeared and built another online presence according to the same blueprint.
In conclusion, conducting some basic research is all you need to thwart advance fee fraud scams.One of the most common complaints from property developers is the sheer number of domestic UK and international lenders. Deciding which one is right for you is difficult enough without worrying about whether you’re going to be scammed along the way.
The easiest solution to avoiding advance fee fraud is to work with a registered and licensed UK broker. Platforms like KIS Finance don’t lend money themselves but connect lenders with borrowers by leveraging vast networks of industry connections.
Registered brokers conduct all the necessary research into the lenders in their network because it’s their licenses and reputation on the line if their clients get scammed by a fake lender. Working with a reputable brokerage like ours ensures that you’re protected against advance fee fraud and other scams.
Moreover, partnering with a broker provides access to the best loan terms and rates on the market. Outsourcing the process of sourcing development loans not only produces better results but also saves hundreds of hours of your time, allowing you to focus on your next project.
To learn more about how we can support you in getting the development funding you need whilst protecting you from fraudsters, contact KIS Finance today.
All fees are typically taken from the loan amount before disbursement. Every lender will charge fees but won’t ask for them upfront. Examples of fees you might be asked to pay include processing fees, valuation fees, security deposits, documentation costs, and due diligence fees.
If you believe you’re the victim of advance fee fraud, stop all contact immediately and report the fraud to Action Fraud online. You should also report the fraud to the FCA, especially if they’re using a forged number or someone else’s number.
In some cases, yes, but it’s challenging to recover money, as it’s often washed through multiple entities. It becomes even more difficult if foreign accounts are involved because the money might already be gone. However, you should report the fraud to your bank and talk to your solicitor to see what legal options might be available.
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Last updated: 10 January 2025 | © KIS Bridging Loans 2024 | Terms & Conditions
