Business Loans

Avoiding Business Loan Scams

Business loans from legitimate and traditional sources are heavily regulated. Banks (typically) try to abide by lending rules – but as we see new non-traditional lending sources appear from peer-to-peer lending, royalty lending and “crowdfunding” – the law doesn’t always keep up with scammers ever-growing options.

Even with traditional lending routes, there’s growing concern being raised over “predatory” small business lending, with the FTC vowing to tighten scrutiny of small business loan contracts and abusive loan terms that according to Commissioner Rohit Chopra “have led to a flood of questionable legal actions”.

According to FTC Bureau of Consumer Protection Head Andrew Smith “We are very concerned about reports of unfair and deceptive marketing, sales and collection practices in the small business finance market.”

As an example the currently unregulated merchant cash advance industry often requires SMB borrowers to agree to confessions of judgement. Essentially these borrowers are agreeing to lose any related court dispute that may arise in future.

Be aware that despite growing legislative power, many of the rules protecting consumers don’t necessarily protect SMB owners.

This is why when it comes to any form of business loan, it’s important to check all small print for rates, repayment terms, hidden fees, fines, claw-backs and any terms where you’re effectively abandoning key rights.

On single mistake in your choice of loan or line of credit supplier can have long-lasting repercussions not just for you but your customers and suppliers too.

So how can you protect yourself when looking for business loan services?

• Only use legitimate and trusted companies, such as those we list above.
• If a deal looks too good to be true – it probably is. Read the small print and don’t sign away tour rights to anything.
• Check a service company’s credentials at the BBB and with your local Chamber of Commerce if they are in-state.
• Read online reviews – is there a pattern of complaints with the company concerned?

And most importantly remember there are always other sources of finance. With interest rates low and investors looking for alternative places to park their capital, you’ll always have options.