Securing financing is essential for business operations, from startup to expansion. Securing the right financing can be a complex process. Unfortunately, some lenders may use deceptive tactics to lure borrowers into unfavorable loan terms.
Predatory lending is a harmful practice with deceptive and unfair terms for borrowers, often trapping small business owners in a cycle of debt. The long-term impacts of predatory lending can be devastating. Predatory lending can harm your credit score and make it much more difficult to secure another loan down the road. It’s important to know about the basics of predatory lending and understand some reasonable alternatives available on the market today.
Here are some common signs of predatory lending:
- Exorbitant interest rates: One of the first red flags includes interest rates that are significantly higher than the average market rate. Pay close attention to the Annual Percentage Rate (APR).
- Burdensome repayment schedule: Some loans require weekly or even daily repayment which can quickly eat into your cash flow.
- Unusually easy approval: If the loan approval process is too easy, that’s a red flag. To ensure you can handle the loan, a responsible lender will evaluate your creditworthiness by reviewing your credit report, verifying your income, and asking about your monthly expenses.
- Hidden fees: Hidden fees, such as processing, origination, and excessive late fees, can dramatically increase the total cost of a loan.
- Aggressive sales tactics: High-pressure sales tactics that can coerce borrowers into taking out loans they don't need or can't afford.
To avoid predatory lending:
- Shop around: Compare offers from multiple lenders to find the best rates and terms.
- Understand the terms: Read the loan agreement carefully before signing. Make sure you understand all of the terms and conditions, including the interest rate, fees, and repayment schedule.
- Ask the right questions: Trust your gut. If something feels off, ask questions and make sure you’re getting the answers you need.
- Beware of high-pressure sales tactics: If a lender pressures you to sign a loan, it may be a sign that they are trying to take advantage of you.
- Consider alternatives: If you're struggling to make ends meet, there may be other options available to you. Live Oak Express is a great option for business owners who need cash fast.
At Live Oak Bank, we genuinely care about the success of our customers. We work closely with every single borrower to understand their business goals and pair them with the appropriate loan type. Be aware of the signs of predatory lending and take steps to safeguard yourself from these harmful schemes.
