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This blog was last updated on December 10, 2020.
Deceptive lending practices abound, especially when you’re on the market for a business loan with less-than-perfect credit. Massive fees and skyrocketing interest rates combined with inflexible terms and pre-payment penalties could be the end of your business success when loans are supposed to help you create wealth.
How do you define predatory lending? The FDIC describes it as “the imposing of unfair and abusive loan terms on borrowers.” Unfair and abusive terms are geared toward making you, the business owner, pay more in fees and interest, rather than setting you up for success to repay the loan in good time.
The worst part is that some lenders are skilled at these deceptive practices and try to hide their predatory terms behind the tempting promise of instant cash. Take the time to learn about the defining traits of a predatory loan so you can protect yourself when shopping for the right funding solution.
Look out for vague terms & pricing
Any loan terms should have the terms of repayment, interest, and any other fees laid out clearly on the very first page. If you have to go digging into the fine print to find the actual terms of your loan, that’s a red flag. Interest should be listed as APR or a similarly easy-to-calculate format, so there are no questions about what exactly you’re paying.
Along those lines, if you have questions about your loan terms, there should be an associate available to answer those questions before you sign the terms and make it official. Don’t sign a loan agreement if you aren’t 100 percent sure what your financial obligations are.
Find a lending partner who offers a personalized, one-on-one experience. It’s ideal when you are a real person/company to your lender, not just a number in a list.
Avoid overly aggressive brokers
Stay away from brokers who pressure you into signing a loan agreement on the spot. You should always take the loan terms into consideration before signing, making sure that you read the fine print and understand your repayment obligations.
If a broker wants you to sign without answering your questions about the fees and terms involved, then there could be terms involved that would turn you off from signing the agreement. Your broker should want to help your business succeed, not burden it with unrealistic financial obligations.
Understand your payday loan terms
Some business lenders offer short-term loans that demand repayment within 7, 14, or 30 days – in other words, the length of time of a pay period. A business lender who offers payday terms should be closely scrutinized.
These lenders know that you’re borrowing because you have a cash flow problem, which is unlikely to resolve itself within 7 to 30 days. As such, they’re banking on your defaulting on the loan and being on the hook for late or nonpayment fees.
There are legal protections against payday-type loans in some states, but these lenders aren’t always easy to spot. That means that when you’re seeking out funding sources, you need to be even more vigilant to help protect yourself from the possible harms of payday loans.
You deserve personalized support
This one is hard to determine without actually having experience with the lender. We recommend searching Better Business Bureau or Trustpilot reviews to see what prior clients’ experiences were with the lending partner you are speaking with. If you see a clear pattern of poor communication and unanswered questions, then it’s likely that you won’t get good service from this lender.
When you’re dealing with issues as sensitive as business debt, it’s very important that your lender is communicative and helpful. If a payment issue should arise, you need to be able to get in touch with your lender immediately, and AWOL customer service makes this level of communication impossible.
In the earlier stages of seeking out a loan, you can guess that your lender is going to be non-communicative and unsupportive if you find that most of your questions go unanswered or avoided altogether. It’s okay to be a needy loan seeker, especially when your business is at stake.
Recognize Good vs. Bad Lending Practices
A good lending partner has a stellar reputation, a solid history of lending to satisfied small businesses, and is up-front about all of its terms and conditions. Its brokers and customer service representatives are interested in helping your business succeed, not burdening it until it fails.
Above all, it’s vital to know the reputation of your lending partner before you commit to any debt. Know that they are easy to work with, cooperative, and have no predatory tendencies that could lead your business into trouble. Mulligan Funding has a great reputation among our clients, with an A+ rating by the Better Business Bureau and numerous positive user reviews.
Call Mulligan Funding at 855-326-3564 to discuss your financing options today!
The information shared is intended to be used for informational purposes only and you should independently research and verify.
Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.