If you’ve been trying to secure funding for your startup, you may have trouble getting it through a traditional bank loan.
However, there are a number of other options you can pursue to get your business off the ground.
But not every lender is created equally. There are a number of high-risk loans that might look appealing to the struggling entrepreneur, but that risk is usually a trap.
In this guide, we’re walking you through which high-risk loans are safe, and which should send you running.
Payday loans operate under a simple principle: if you have bills due before your next paycheck comes in, you can simply get a loan for that amount, pay your bills, and repay it as soon as you payday comes.
Payday loans are often marketed to people with bad credit scores who can’t otherwise obtain a loan.
They have short terms and high interest rates. But, if you pay the loan back in time, you won’t have to deal with those interest payments.
The problem is, most of those loans aren’t paid back on time. 80% of payday loans are rolled into another term, collecting interest while it goes.
A payday loan may seem like an attractive option, but they could put you in a cycle of debt that’s hard to break.
Tax Return Loans
Every April, people all over America dream about what they can do with the tax return coming to them. In 2019, the average tax return was $2,725.
Some aren’t able to wait for that check. Instead, they take out tax return loans.
These no-interest loans are quickly approved and are secured by your expected tax return check.
In order to be eligible, the company providing the loan has to prepare your taxes for you.
However, the cost of that tax preparation may put a significant dent in your return. Waiting for your check will put more in your pocket.
Car Title Loans
If you need fast cash and hold the title on your own car (that is, you’re not making payments anymore), you may be able to put your car up for security for a loan.
Like payday loans, car title loans are short-term, low-dollar loans that are approved quickly. These are usually around $500 to $1,000. If you pay the loan back within the term (usually 15 or 30 days), you pay no interest.
If you don’t pay it back, you can be in a world of trouble. Many car title loans have an interest rate of 25% per month—that’s a 300% APR.
If you can’t stay on top of the payments, the lender will repossess your car. That’s a high price for such a small loan.
Credit Card Cash Advance
If you need cash for a purchase that won’t accept a credit card, you can often use your credit card at an ATM to receive a cash advance.
It might feel just like withdrawing money at an ATM, but it can cause a spiral of debt.
While a regular credit card charge may have an APR of 17% or so, cash advances often have a much higher interest rate—sometimes as high as 27%. This doesn’t include the per-transaction fees charged each time you swipe at an ATM.
Say No to These High-Risk Loans
These high-risk loans might look like a good option if you’re short on cash with a bad credit score, but they can dig a hole of debt that can be difficult to get out of.
If you’re in need of fast cash to fund your startup, contact us instead. Apply now to see how we can help you!