“Guaranteed loan approval; receive funds within 24 hours. ” “No credit check; interest rates from 0%; only a small application fee is required. ” These statements may sound pretty good for a small business owner desperate for capital.
But, as the old adage goes, “If something sounds too good to be true, it probably is,” says Carolina Martinez, CEO of CAMEO, a California microbusiness network. Just because this is the most common attractive solution does not mean that it is the right solution, she said.
Many small businesses are still recovering from the financial fallout from the COVID-19 pandemic, and with the end of the payroll protection program and approved bank loans below 20%, fraudsters and predatory lenders are seizing the opportunity to invade businesses looking for funding.
Protect yourself from potential intruders and find legitimate capital for your business with these four tips.
1. CAUTION OF SPEEDS
Fast isn’t always best when you’re looking for business finance. “Beware of quick sales,” says Tom McHale, president of Pursuit, a public lender based in New Jersey, New York and Pennsylvania.
While some online lenders excel at speed, predatory lenders can speed up the loan process in order to nudge you towards a high-value product without fully understanding the terms.
“You are going to pay significantly higher rates and fees for this money than traditional funding, which can take a little longer,” McHale says.
He encourages companies to look for lenders who will allow them to speak to a representative directly, rather than just a bot or chat, so you can ask questions and understand the terms of the loan.
And if the lender is unwilling to tell you the terms and rates of the loan in advance, that’s a red flag.
2. NEVER PAY MONEY RETURN
“Don’t pay up front to get a loan,” says Frank Lamonaka, chair of SCORE’s southeastern Connecticut division, a network of volunteer mentors supporting small businesses across the country. “You shouldn’t be doing this.”
A reputable online lender will not charge any fees if you have not approved the loan. La Monaca says that if a lender only wants money to view your application, this is a worthless sale.
“No one should ask you for $ 2,500 to apply for a loan. You should be able to apply for free, ”he says.
Likewise, don’t trust emails that seem to come from government agencies that ask for personal information like your social security number, require prepayment, or guarantee loan approval. The US Small Business Administration recommends keeping a close watch on these phishing attacks, as well as other types of grant and loan fraud, especially related to COVID-19 assistance.
3. EXPLORE ALL YOUR LOAN OPTIONS
Businesses may have more financing options than they think.
“Realize your market power,” says LaMonaka. There are many loan programs to choose from, including those that target specific types of businesses, such as women-owned businesses, minority-owned businesses, and veteran-owned businesses.
Community Development Financial Institutions known as CDFIs, non-profit lenders and trusted online financial services companies can offer loans at affordable rates and competitive terms – even for new businesses or those that cannot qualify for bank financing.
Some of these lenders, such as CDFI, can help businesses saddled with predatory loans refinance better products, Martinez says.
You can search for local CDFIs through the SBA’s website as well as through organizations such as the Opportunity Finance Network, the national CDFI association. Reading reviews and referring to resources like the Bill of Rights for Small Business Borrowers can also help you find reliable online lenders.
4. SURROUND YOURSELF WITH THE RIGHT SPECIALISTS
If you’re unsure how to find the right funding for your business – or want to make sure you’re not hitting a bad deal – get in touch with the experts. You can work with an accountant, lawyer, or other financial expert to guide you through the process and even review your loan application and contract.
Most CDFIs are equipped with an ecosystem of support to help small businesses assess their financial position, business models and strategies, and gain access to capital, Martinez said.
In addition, organizations such as SCORE and SBA-administered local small business development centers offer free business advice. You can search their websites to find experts in their field to work with your business, as well as view additional online resources.
LaMonaka stresses the importance of building the team and forging relationships that will help you run your business: the best business owners don’t go it alone. “The best people have really good people,” he says.