Are you thinking about taking out a loan for your business?
For the most part, people take out loans to start up their business. Others do so to help their business go through a tough time. Others also do so because they misunderstood how business taxes work for small businesses and they are taking out loans to pay for it.
Taking out a loan is good and all, but there are many dangers associated with it. The most dangerous one is being a target for business scams.
Most people don’t know how the financial system works. They often don’t bother learning about things like the factors affecting their loan approval and technical jargon like credit financing, which makes them prime targets for scammers.
To help you avoid these kinds of scams, we have written a list of tips down below. Read on to protect your finances while taking a loan.
1. Don’t Pay for Anything While Making a Deal
Most lenders like to throw around words like administration fees and similar terms. Often, they throw these terms and phrases around to try to get you to pay for something. The sad part is that most people don’t know how things work that they end up paying them.
We’re telling you about this now, there is no reason for you to pay for anything upfront. The way a taking out a loan works is by the lender calculating some things based on your credit scores. They will give you an amount based on that.
They will not ask for anything upfront because it wouldn’t make sense to take money from a borrower. They get their income from the interest the borrowers pay by the end. They also get their income from the commission fee for employing their services.
The only thing that lenders may ask you to pay upfront is an origination fee. These fees are what you pay if you’re taking out a new loan after doing business with the lender in the past. Origination fees will not cost you much though, often only coming in at 0.5% or 1% of the loan you’re taking out.
That said, you shouldn’t mistake this for a down payment. Down payments work differently. Legitimate lenders should also not ask you for a down payment when you’re taking out a loan.
2. Know the Kind of Loan You’re Looking For
Knowing what kind of loan you’re expecting is a good idea before approaching private lenders. This will help you avoid getting tangled in debts because of one tactic scammers use. Most scammers like to take their targets all over the place by confusing them with the loans they will receive.
Legitimate and professional business will know what kind of loan you need after looking at your credentials. They will also know what kind of loan they can help you with based on your credit score. They do this to help you keep out of outstanding debts.
Meanwhile, scammers will try to sell you to a loan that you don’t need. Often, they will try to get you to sign for a loan without you knowing what it entails. Commonly known scams within the loan industry are car title loans and the pawnshop loans used by pawnshops.
Often, this results in you either occurring a debt that you have no way of paying or having something taken from you like your car or even your current living space. This is why it’s important to remain vigilant when you’re talking to a private lending company. Your property may depend on the decisions you make.
So, don’t overlook the importance of a little research. Knowing what kind of loan you need and can afford can help you avoid a proactive scam, things like signing your property away, and predatory student loans.
3. Don’t Go for Guaranteed Approval Offers
Have you ever arrived in a lender’s office and received an immediate approval guarantee? Many people tell stories of lenders having a 100% approval rate. What they don’t know is that they may have already made the mistake of trusting a scammer if they believed that.
A borrower’s approval rate depends on the credentials they bring when taking out a loan. Of these things, the ones lenders look at the most are the client’s credit history and credit score. This is because these two factors will tell a lot about how responsible someone is with their finances.
Lenders determine whether someone is fit to give a loan by looking at their credit score. Also known as credit rating, your credit score will change based on how well you pay back your debt throughout the years. It takes a long time to raise someone’s credit score, so having good credit will bode well for you.
If you have bad credit, on the other hand, you can still get bad credit loans and payday loans. This will depend on your credit history though. This tells lenders how you’ve handled your finances in past years.
This also lists down the places you’ve borrowed from before. So, the lenders will be able to verify your financial responsibility with this.
So, the next time you hear someone guarantee you a loan even without seeing your credentials, it’s best you get up and walk right out of there.
4. Go for Realistic Lender’s Offers
The phrase “too good to be true” will ring true when it comes to taking out business loans. If you happen to come across an ad telling you about a phenomenal deal, you may want to be cautious about it. While it may seem like the perfect deal, you may soon find yourself waist-deep in interest rates and debt.
A reason scammers do this is to gain clients. Many legit businesses offer deals that are reasonable for them and their clients. As a way to combat that, scammers also come up with deals, often better looking compared to other offers.
Of course, this will attract more people because of the better terms. However, these deals often come with a catch. Most of the time, the catch is that you have to pay for something upfront, as mentioned above.
In some cases, scammers add unthinkable interests to their terms. This means that you have to pay it back on time if you want to avoid paying the obscene rates. In other cases, they will offer you an amount in exchange for one of your assets.
While asset lending has its pros and cons, it’s often not a good idea when it comes to what sounds like an unbelievable deal. You may end up losing ownership of your property once you find out about the catch. Often, it’s that you have to pay the loan back in an unrealistic amount of time.
For this reason, it’s often better to get a loan from banks instead.
5. Avoid Making Deals with Aggressive Lenders
Being aggressive is a valid tactic for salespeople. This allows them to apply enough pressure to get an answer from a client who is feeling indecisive. When it comes to taking out loans though, it may mean something that warrants suspicion.
Direct business lending is a delicate process. Lenders know this, so they should never rush anything with their clients. Professionals let their clients take their time in deciding whether they’re going to push through or not.
You will be able to tell if you’re getting scammed if you see that your lender is getting aggressive. Scammers often push their clients into rushing their decisions. This is because they know their targets may spot the flaws in the deal if they’re given enough time to think about it.
They often target people with gentle natures. This is why they target a lot of Asian-American seniors.
This also doesn’t only concern a pushy attitude. Other methods of pressuring you into securing a deal also count as an aggressive tactic. Them throwing terms like “limited time only” is another way for them to rush your decision.
With the holidays being an exception, lending companies often don’t have temporary deals. They often stick to an offer then present. This is because they think about their offers to see if they’re going to at least break even before offering it.
So, find yourself a lender that gives you time to think. Otherwise, you should end whatever business you’re doing with the lender.
6. Take a Close Look at a Lender’s Website
In 2014, online scams were highly prevalent, costing its victims hundreds of millions of dollars. This is because doing business online was still considered new. This meant that people didn’t know what to look out for to tell if they were getting scammed.
Lending businesses often have their own websites. This lets people know about them in advanced before they decide to go to their base of operations. However, scammers also set up websites of their own to let more targets know about their services.
Being able to tell which website is legitimate and which is a fraud is crucial to be able to protect your finances appropriately. Often, you can tell the website is only a front from the content alone. Legitimate lending companies spare no expense when making their website.
This means that you will see that there are no broken links, images, and videos on their website. This is because they often hire professional web designers to make their websites.
If their content checks out, you should then take a look at their contact page. Scammers often don’t bother putting a contact page on their website. This makes sure that their targets have no way of contacting them after they’re scammed.
That said, even if a website has a contact page, you should still check if they respond. A proper response should be enough to confirm that they’re a legitimate page. If their reply looks a bit generic though, you should look into other websites instead.
7. Avoid Unsolicited Deals
Sometimes, you will get a call from a lender you’ve done business with before. They often call to let you know about a deal which they think may help you. Under no circumstances should you take any deal like this.
Lenders are not known to offer you any deal on a whim. Even if you’re friends with the lender, they will often wait for you to ask first before offering anything. So, if you get a call about any new deal they are giving you, you better look for other lenders instead.
You may also get an e-mail talking about new offers. In this case, you may want to look at the e-mail address of the sender. Businesses will never use personal e-mail accounts.
Businesses will always have a separate account to use for e-mails and such. Seeing a personal e-mail account should be a red flag that it’s a scammer. If you’re not sure about the sender’s account, you can always check if they have a website in that name.
You should also be suspicious of ads. Websites display the ads that you see based on your logged browsing history. While it does a great job at this, search engines still don’t know how to filter out scammers.
8. Don’t Take Multiple Deals with a Suspected Scammer
Even if you find that you can’t pay off your debt to a scammer, you shouldn’t do more deals with them. This is how scammers milk their targets for last as long as they can. While their initial offer is tempting, you will only bury yourself deeper in debt.
A way scammers do this is by suggesting to take another loan to pay for the previous one. This is bad in many levels, because how can you expect to pay off that loan if you can’t pay off the first one?
Your only option to get out of this is to borrow money from friends and family. At least with them, they will not have a rising interest rate the longer you take to pay off your debt.
Avoid Business Scams Today
You should fear no business scams with the help of our guide. Approach a business loan center with confidence today!
Have any questions about small business loans? Contact us here and we’ll get in touch as soon as possible!