Learn the warning signs of unfair business loans and get tips for safe borrowing.

Small business owners often find it difficult to get loans. Sometimes it’s because big banks don’t handle loans they deem too small. Other times it’s because the business hasn’t been around for very long. These challenges make owners vulnerable to predatory lenders. Here’s how to keep your business safe from lenders who take advantage of borrowers.

What’s considered predatory lending?

Predatory lenders are those that engage in unfair and deceptive practices. These range from misleading marketing to exceptionally high fees and interest rates. The practices are abusive when the lender knows the borrower won’t be able to repay the loan.

Who’s susceptible to unfair loans?

Businesses strapped for cash and those less than two years old are frequent targets of predatory lenders. Lack of financial acumen also makes some business owners susceptible to promises of easy credit that comes with steep costs.

Warning signs of predatory loans

Warning signs that you’re dealing with a predatory lender include:

• Interest rates that are significantly higher than other lenders’
• Fees that are more than 5% of the loan value
• High-pressure tactics and loan offers that expire quickly
• Unclear loan terms and interest rates
• The lender doesn’t do a credit check

A legitimate lender will make all the terms of a business loan clear and will not pressure you into signing quickly.

Tips for staying safe

Protect your business from lenders who take advantage of borrowers by taking your time and thoroughly review the terms.

“Make sure the lender discloses the annual percentage rate and full payment schedule,” advises the Small Business Administration. “A lender should never ask you to lie on paperwork or leave signature boxes blank. Don’t get pressured into taking a loan.”

When seeking a loan, compare offers among several lenders. If an offer is too good to be true, it probably is.

Another way to make wise lending decisions is to seek the counsel of a trusted accountant, financial planner or attorney before signing for a business loan.

Also, beware of merchant cash advances that can trap your business in debt.

Make Consumers your source for business loans

Each Consumers business services team member is a pro at helping local business owners get the loans they want. Call us at 800.991.2221 or contact one of our commercial loan officers online to learn about your loan options.

 

All loans subject to approval. Rates, terms, and conditions are subject to change may vary based on credit worthiness, qualifications, and collateral conditions.