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Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford.
Scenario: Despite trying your best your bank has declined your business loan. In looking for alternatives you discover a whole world of other possible lenders that you never knew existed. Some say they can help. How can you tell if these lenders are legitimate or a scam? Here are five red flags that you need to know about.
- No website or physical address.
The vast majority of business lenders will have an up and running website that should provide a lot of information about them, the loans they do and a testimonial section of borrowers they have helped in the past.
Although we work with a few, vetted private lenders who lend their own money and have no websites please take extreme caution when finding these lenders on your own. The reason is because it’s almost impossible to tell a legitimate lender from a fraud.
A P.O. Box especially should also sound off an alarm. From our experience even private lenders who lend their own money and do not want to disclose their home mailing address will have all correspondence go to their attorney who would be handling the loan closing.
- Incredible terms for your loan
Although competition from new lending sources have pushed down rates on the harder to do loans, their terms still won’t be as good as what your Bank could have offered.
“Too good to be true?” is something that you should ask yourself when you see posted rates that make little sense.
- Fast “guaranteed” approval
The vast majority of business lenders will initially not issue an approval but instead will issue a LOI (Letter of intent). The reason is that due diligence needs to be conducted before an approval or commitment letter is issued. Be cautious of someone telling you from the outset that you have a guaranteed loan approval.
- 4. Act now or offer is withdrawn.
Be wary of a lender who issued you an approval, pressuring you to move forward today or their loan offer might be withdrawn. If your loan is approved today why wouldn’t it be approved tomorrow? Ask yourself “Why the pressure?”
- Upfront Fees
This normally ties into reason number 4 when you are told you need to act now and pay an upfront non-refundable commitment fee. Be warry of loan brokers who insist that you make a down payment before they can help you look for a loan. Most loan brokers will charge you a fee once they have found a lender and you have agreed to their loan terms.
In summary a super-fast approval from a lender (with no website or physical address) who is offering you a fantastic rate if you pay a lot of money up front, is someone you want to avoid.
The above article was provided by The Best Business Loans in Town which is an online shopping tool that helps business owners find the best deals on business loans.
