4 ways businesses can dodge loan scams and predatory lenders

“Guaranteed loan approval; receive funds in 24 hours.” “No credit check; interest rates starting at 0%; only low application fee required.” These statements may sound pretty good to a small-business owner in desperate need of capital.

But, as the old saying goes, “If something sounds too good to be true, it probably is,” says Carolina Martinez, CEO of CAMEO, California’s statewide micro-business network. Just because it’s the most frequent appealing solution you’re hearing doesn’t mean it’s the right solution, she says.

Many small businesses are still recovering from the financial impact of the COVID-19 pandemic, and with the end of the Paycheck Protection Program and bank loan approvals below 20%, scammers and predatory lenders are taking the opportunity to move in on businesses that are searching for funding.

Protect yourself from potential bad actors and find legitimate capital for your business with these four tips.

1. BE WARY OF SPEED

Fast isn’t always better when you’re looking for business funding. “Be wary of the speed sell,” says Tom McHale, president of Pursuit, a community lender operating in New Jersey, New York and Pennsylvania.

Although some online lenders excel in terms of speed, predatory lenders can rush you through the loan process to push you into an expensive product without fully understanding the terms.

“You’re going to pay significantly higher rates and fees for that money than you would for traditional financing that might take a little more time,” McHale says.

He recommends that businesses look for lenders that allow them to speak to a representative directly — rather than just a bot or live chat — so that you can ask questions and understand the loan’s terms and conditions.

And if a lender is...