There are many companies out there that will offer you a business loan even if you or you company has bad credit. Simply do a websearch for “bad credit” and “business loans” and dozens of companies will show up, each one promising to give you the best loan against your bad credit. Welcome to the subprime market.
Many of these lenders are honest corporations with reputable business practices. They follow a set of strict guidelines set out by the government in order to maintain their operating license. However, there is a growing tide of lenders who thrive on those who desperate and uninformed. How do you tell the difference?
What is the subprime market?
The subprime market is made to cater to those with poor credit history. It also is a place for those that have no credit history, like the young, elderly or immigrant demographic.
While a majority of these operations are legitimate, there is an undercurrent in the subprime market that is not only unethical, but downright illegal. These devious operators count on their customers to be desperate and lacking any knowledge of their rights in a lending situation.
So if you in need of a loan, but do not yet have the history that will allow you to access it from a formal lending institution, you need to be aware of a few things so that these sharks will not make you such easy prey.
The warning signs of predatory lending
There are several warning signs to look out for if you suspect that you are dealing with a predatory lender.
- First, in order to get a loan, you should not have to pay a lot. Normally there is a small administration fee when setting up a business loan application, but if the amount if exorbitant, you should find another lender.
- Another thing to examine is the interest rate offered. Regular loans in both the prime and subprime markets can vary, but if you are being asked to shell out over six percent, you should go elsewhere. Please note that some predatory lenders hide their true interest rate with compounding it, so make sure to do your math before you sign anything for your business loan.
- Some predatory lenders will try to sell you a larger loan than what you were initially asking for. Most of the time they will press you to use your home as collateral. You would be doing yourself a disservice to accept more debt than you actually need, never mind putting your home on the line.
- Every lender, both in the prime and subprime market has administration fees associated with their loans. Predatory lenders will have concealed fees that will escape you until you do the math. So, make sure to add up your final debt load and ask about anything that does not make sense. If your fees make up more than two points of your total loan, it is time to break upon the books and possibly walk out the door.
Getting a business loan is a risky business, especially if you are shopping on the subprime market. Many small business owners have avoided this risk altogether by accessing their capital through a business cash advance. This method has a successful, proven track record with businesses as it is based solely on the purchase of future credit card transactions and therefore bears no interest and has no obligation of repayment.