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Business Owners and Identity Theft

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Business Owners and Identity Theft
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You don't hear much about business identity theft, because most of us don't own our own business. Technically speaking, a business can not be the victim of identity theft. But from a practical standpoint, there are many ways of identity theft can impact your business, both directly and indirectly.

Many Americans have realized that the only way to get out of the "rat race" is to go in business for themselves. After all, when you're running a business there are huge tax breaks, put in place to help your businesses get going and stay competitive, breaks that are not available to the average consumer. However, there are also additional risks involved with running a business when it comes to identity theft.

Going Down with the Ship

Becoming a victim of identity theft yourself is possibly the biggest risk to a small business owner. All of the regular issues still apply, but you also have to worry about the impact it will have on your business. For instance, the time you have to take to fix the problem will usually be during business hours. Estimates vary widely when it comes to how much time you will spend, but the FTC has said it can take an average of 400 hours. Most small businesses would collapse if the businessman spent that much time away from his company.

Loan acceleration is a big concern. Most small businesses need to take out some kind of loan to get going, to buy inventory, to rent office space, trade shows, training, payroll, the list is almost endless. For most small businesses, the loan is linked to the owner's credit. Naturally, the bank wants to make sure their investment is safe, so they regularly review his credit report. They generally have access to more information, by performing a Social Search, and may be aware of an identity theft issue long before the business owner, although they are not allowed to disclose that information. If that is the case, they may decide to "accelerate the loan," which means they would want the entire amount paid back within 30 days.

Double Jeopardy

Universal default is another identity theft worry to business owners. This legal clause is frequently used by credit card issuers and lenders, and is their version of the loan acceleration. Of this, the CITRMS Reference Manual* says;

This provision typically states that if the cardholder defaults or is bleak on "this or any other credit account, with any other creditor or institution," the outstanding credit balance may be required to be repaid in full or the interest rate may be increased up to the maximum rate allowed by law.

This would be the case for a business owner who was simply a victim of financial identity theft, but hadn't learned about it yet. And since he is the guarantor of his business' credit, it doesn't really matter whether the identity theft was related to his business or not. In either case, his business and personal assets could be quickly and severely impacted.

Simply put, either of these scenarios can close a business owner's doors.

The Hits Just Keep on Rolling

Things get a lot more complicated from here. The financial problems are bad enough, but they get compound in if the business owner is a victim of Social Security identity theft (i.e. somebody reports earnings under his Social Security number.) The IRS looks closely at businesses anyway, so if they think a business owner made more money than he's reporting, it can be an extra drain on time and money clearing the mess up.

There are "intangible" costs involved as well. For example, I once talked at length with an insurance agent who had someone impersonating him in another state. The identity thief was not only using his name, but also his insurance license. This constantly caused him problems, and he eventually quit selling insurance.

It will be impossible to focus on running your business while you are dealing with an identity theft issue, no matter what form it takes. The pressure will be far more, too, than the average identity theft victim, because most small business owners rely on their company for their personal income. When you add the threat of losing your income to the pile of problems already mentioned, it's easy to see why more and more business owners are enrolling in identity theft protection services.

They have so much at stake that the need every ounce of help they can get.

*CITRMS Reference Manual, The Institute of Fraud Risk Management, Inc., © 2007

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