Every industry, field and sector – from sports to entertainment to science – has its share of bad apples. Sadly, there are some people who deceive, cheat, lie and manipulate so they win, and others lose. The reason we bring this up, is because these bad apples exist in the business funding world, too.
While they aren’t in the majority, the fact that bad lenders exist means that you need to watch out for nefarious scams and notorious schemes when you apply for a small business loan. When your business and your finances are on the line, here are 3 big red flags to watch out for:
1. They want you to pay them up front.
A funding company that wants you to pay up front isn’t a legitimate funding company. Scam lenders will typically send loan pre-approvals via email or mail, which seem legit because many reputable lenders will also send out similar loan pre-approvals to business owners. However, you should be able to identify which pre-approvals are trustworthy because a scam lender will typically call or email demanding a fee before you get the money.
Therefore, if a lender wants to collect a fee for a vague purpose like “insurance”, “processing”, “registration” or “paperwork”, chances are they’re trying to scam you. Legitimate lenders may charge fees, but their fees are disclosed clearly and prominently. Typically a good lender will take their fee from the amount that is borrowed and the fees are usually paid after the loan is approved, not before.
2. They don’t have a physical address.
There’s nothing wrong with some businesses that operate 100 percent virtually – especially since this can be quite profitable. However, the exception to virtual businesses is in the business funding world. If your lender doesn’t have an address that you or anyone else could go to (even just to say hello and have a coffee), then your alarm bells should be going off.
Scammers like to give out company names that sound professional and sometimes these can even be backed up with scammy websites, forged paperwork and paid references. You can pick out the bad ones by checking their addresses and phone numbers with official websites and phone books. For example, a scam lender might pretend to be the Better Business Bureau but if you see they are using a P.O. Box or calling from a number different from the ones on the BBB’s website, this should be a red flag.
3. They 100% guarantee that you’ll get a loan.
There aren’t many guarantees in life, and so when we come across them, we tend to feel safe and secure. However, if a lender “100% guarantees that when you apply for a small business loan that your money will be ready and waiting for you in a matter of days (or even “within 24 hours”), be careful.
Most good lenders should be able to work with you if you have bad credit or a bankruptcy in your past, so their approval rates should be high but they can’t always approve every loan application. Therefore, a 99% approval guarantee is better than a 100% guarantee when it comes to business loans.
The Bottom Line
At National Business Capital, we’re proud to be among the many firms in the business funding marketplace that do the right things, the right way. That’s why we never charge up-front fees, you can visit us anytime, and while we have a very high small business loan approval rate, we don’t guarantee 100% approval – because that’s not proper or possible.
If you’re ready to apply for a business loan, check out our two-minute application and apply for the funding your business needs today: