When you run a small business,
outside funding can help you get started, keep going, or take your business to
the next level. However, not all funding opportunities have your best
interests in mind.
If you struggle to find funding
sources or qualify for financing, it's tempting to accept money coming from any
source that will send it your way. Sometimes that can work out well, while
other "gift horses" can take advantage of your situation with funding
that is too good to be true.
How can small businesses recognize
deceptive practices? Watch out for these five practices.
1.
No Credit Check Required
Most reputable lending or funding
institutions won't give money to individuals or businesses without a credit check.
They need confirmation that you'll pay back the loan or put their investment
into your business to good use. Without a credit check, funding agencies can't
trust that you won't take their money and run.
If a lender doesn't care enough to
check your credit, that doesn't mean they won't want their money back—with
significant interest. Reputable lenders will confirm that your credit justifies
trusting you with a loan.
2.
Hidden High Fees
Always read the fine print. If a
lender is too eager to give you a loan when others turn you down, dig deep into
the fine print to learn more about applicable fees.
A trustworthy lender clearly
outlines all fees associated with a loan. If interest rates and other
additional fees seem high or out of the ordinary, you don't want a loan from
that company. Hiding fees deep in the fine print is a form of misrepresentation
that should be a red flag warning you away from a lender.
3.
Interference
Sometimes lenders engage in behavior
that hurts others while benefitting their agency. Creating a situation that
makes other funding options seem like a bad idea to generate more business for
their own agency can be considered tortious interference.
This type of bad behavior in the
funding industry can be hard to recognize unless you are familiar with cases
like Rightway Funding. Borrowers benefit from competition
in the lending market, as long as it's fair and within the law.
4.
Bank Account Access
A lender doesn't need access to your
bank account to approve you for a loan. While you should expect the credit
check we mentioned above, stay away from a funding agency that requires
credentials or a voided check to approve you for a loan.
5.
No Way Out
Loans with high fees and interest
rates can trap you in a payment spiral with no way out. Refinancing a loan or
adding a new loan to pay off your current loan with the same lender benefits
your lender while keeping you buried with neverending loan payments.
Learn
to Recognize Deceptive Practices In Funding
Recognizing deceptive practices can
protect your business from unfair funding situations and predatory agencies.
Watch for red flags to avoid these five actions of bad lenders.
If you found this information
helpful, be sure to check out more of our articles!
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