5 Deceptive Practices in the Funding Industry

 

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!