How to Prevent and Recover From Business Identity Theft

Business identity theft tragically affects thousands of businesses every year. American companies lose billions of dollars every year as a result of business fraud and identity theft. In this article, we define what business identity theft is, we discuss the consequences, how to prevent it, and how to recover from it.

What Is Business Identity Theft?

When understanding business identity theft, it may be easier to identify what it is not. It does not refer to the following.

• Theft of proprietary information leaked by an employee or former employee.
• The theft of the business owner's identity.
• An information security breach where information is stolen from the company.

Simply put, business identity theft occurs when an individual or entity illegally uses another company's name and information. It is a criminal impersonation of a company for financial gain. Typically these criminals apply for business loans, credit cards, or lines of credit, use them, and then leave the legitimate business with the balance to pay.

It is important to note that consumer fraud, although devastating as it can be, only affects the individual or the family. Business identity theft not only impacts the business owners, but the shareholders, employees, clients, and customers as well. The ripple effect of business identity theft can have devastating ramifications.

What Are Examples Of Business Identity Theft?

Here are a couple of examples of how fraudsters carry out business identity theft.

• Scenario one. Your company is named 'Dogs And Cats Pet Care'- for example- and someone creates a business called 'Dog And Cat Pets Care' (notice the subtle difference). They then apply for loans, believing that lenders won't notice the difference in the names, and then leave you with the balance.
• Scenario two. The fraudulent company 'Dog And Cat Pets Care,' contacts your customers for payment. The customers then pay the fraudulent company their past due balances. This not only causes a financial loss for your legitimate company but can also hurt your reputation and cause you to lose customers.

What Are The Consequences of Business Identity Theft?

Every year, American companies lose billions of dollars due to business fraud, but that is just the start. As with personal identity theft, a company whose brand and presence were hijacked can suffer both short-term and long-term consequences.

• Short-term consequences. These can include financial loss (especially if money was withdrawn or wired out of your account), lack of cash flow, loss of income due to a temporary closure, and others.
• Long-term consequences. These include heavy credit damage- which leads to an inability to access capital, reputation damage which leads to distrust, loss of vendors and clients, reduction in income, employee termination due to inability to pay, and others.

How Do You Prevent Business Identity Theft?

The best solution to identity theft is prevention, and there are several steps you can take as a business owner to prevent it.

• Guard your information and ensure your employees do too. Guarding your information means more than don't share your information with people you don't know. It means checking the credentials of companies before engaging in business with them. Look up the company's D.U.N.S. number to ensure they are legitimate. It also means that you train your employees to be discreet on their social media posts. The more public information about your company is available, the better criminals can impersonate your business.
• Diligently monitor your credit. Frequently check your business credit score to ensure that no one else is using your EIN. Look into credit monitoring from one of the business credit bureaus such as Dun & Bradstreet, Experian Business, and Equifax Small Business so you are notified when something hits your business profile.
• Consider increasing your data security. The more your information is protected, the harder it is for hackers to steal your information. While the act of stealing information is not identity theft itself, hackers then use or sell that information to impersonate your business. Also, consider carrying Cyber Liability Insurance to cover the cost of a data breach.

What Should You Do To Recover From Business Identity Theft?

If you do become a victim, it is important to act fast. Here are the steps you should take once you discover (or are notified about) the illegal activity.

• Gather the facts. The first step is to gather as much information as you can. Find out what exactly happened, where it happened, and even how it happened, if possible.
• Report the crime. After you gather the information, you need to file a report with your local police department and file a complaint with the Federal Trade Commission. If you have a loan backed by the SBA (such as a 7(a) or 504 loan) or directly through the SBA (such as EIDL), you can report the incident to the SBA. Lastly, if it was an internet crime, file a report with the FBI's Internet Crime Complaint Center.
• Close or freeze your accounts. After you have reported the crime, make sure that the affected account is closed, or at least frozen. It's also advised that you notify your other financial institutions so they are aware.
• Notify the credit bureaus. The last step is to notify one of the three credit agencies, Dun & Bradstreet, Experian Business, and Equifax Small Business, and place a fraud alert on your account. This ensures that you will be notified before any credit requests are processed, so the fraudster can't do anything else to your account.

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