Finding a trustworthy lender can
be a difficult proposition. Borrowers should follow a concrete list of
guidelines which will tell them whether the lender is above board before
initiating the loan. When working with an untrustworthy lender, borrowers’
credit scores and financial reputation can be damaged, leading to future
problems with getting loans later on. August
Funding offers 9 ways to tell whether your lender is disreputable and will
not help you achieve your business goals.
1. Compare Lenders and Terms
Before borrowing money, it is smart to contact a variety of lenders and find out about their pros and cons. A reputable lender will gladly give you their terms and will not pressure you into taking a loan on the spot. Watch out for companies that give you the hard sell and push you into financial terms you are not ready to accept. Beware of any language that states that the loan is only offered for a limited time. These are pressure tactics that can cause an artificial sense of urgency.
Some of the criteria that you should study are the credit score required, the payment schedule, the amount of collateral required to secure the loan, the length of the terms of repayment, and whether it is possible to suspend payments if there are any financial problems with your company.
2. Watch Out for Changes in Terms
If your lender wants to change the terms of your loan, that is a serious red flag that you are dealing with an unscrupulous company. A good lender will adhere to the conditions that are originally put forth. If a lender wants to change the terms of repayment right before the deal is signed, that tells a borrower that they should not do business with this company.
3. Constantly Suggests Larger Loans
When borrowing money, it is crucial to live within your means. Borrowing more than you need means that the lender will be able to reap more benefits from fees and interest charges. Give your business to lenders that respect the amount of money you are willing to borrow without trying to push you into their own terms.
4. Suggesting That You Lie about Income
If your business does not make the revenue needed to receive the loan, bad lenders may suggest that you inflate your income on the application. This can get you into trouble if you are caught, and it is another way to give the lender an unfair advantage in the deal. It can also cause you to get into a loan that you cannot repay under those terms. This can seriously damage your business’s financial prospects.
5. Not Being Up Front about Fees
A good lender will always state their fees clearly and be open to answering questions about any part of the process. A bad lender may give you the runaround and avoid answering the question directly. If you sense that your lender has something to hide, it is time to take your business elsewhere.
6. Be Aware of Your Debt to Income Ratio
Just as you would take this into consideration if you were applying for a personal loan, you should be careful with your company’s debt-to-income ratio. Companies which cater to borrowers with less favorable credit histories are often predatory and will take advantage of the borrower’s needs.
7. Watch for Companies That Do Not Check Credit Ratings
When a loan is offered, make sure that the company goes through the expected procedure of checking your credit score. If a company does not check your credit score, it could be a sign that they are planning to charge you many hidden fees to cover their risk.
8. Interest Rates Per Week or Per Day
This can be a huge problem for borrowers. When interest is charged on a weekly or daily basis, this is a red flag that the company is not operating above board. Interest should be charged on a monthly or annual basis.
9. Non-Traditional Advertising
If a business lender cold calls you or is advertising their services on Facebook, Craigslist, and other similar sites, that is a sign that they are not reputable. Online listings are fine, but you should be careful to find out whether the company has a physical address and office telephone number. Call this number and make sure that someone answers and is able to handle your questions.
Reputable Lenders
These 9 areas can help you find a reputable lender to grow your business. Be cautious when engaging with a business lender, and make sure that all of their terms are clearly stated before signing the loan agreement. August Funding reminds businesses to be cautious and to take all loan proceedings seriously.