How Not to Get Ripped Off On a Business Loan

A business loan can make a huge difference to your company, especially when you’re just starting out. A loan can help you to raise capital for startup costs, or it can provide funds for your business  when you’re in expansion mode. But how do you know that you’re not getting ripped off? What can you do to minimise your own risk while still getting the capital you need?

Avoid Up-Front Fees

If a lender asks you for fees up front, beware.

Up-front fees are a big red flag, and you should probably walk away at this point. Most reputable, professional lending firms only get paid when your company receives the money. If a lender asks for up-front fees, ask a lot of questions about what the fees are for and how they fit in to the overall finances of the loan, and then tell them you’ll get back to them.

Do Your Research

Never fall for a sales pitch without looking into the company and the claims they’re offering. This is true for any kind of deal, not just for business loans.

There are lots of ways to research lending firms. You can search for them online, ask for references, and talk with people in your industry who may have worked with them. A little time researching early on can save you lots of money and headaches in the long run.

Read Everything

Reading the fine print is not exactly fun, but it’s very important if you want to avoid getting ripped off. Even legitimate lenders hide things they don’t want you to know in the fine print. Take the time to make your way through all that fine print, and if there isn’t any fine print, well, that should be a red flag, too.

Increase Your General Lending Knowledge

If you feel uneducated about lending, particularly in the business world, learn the general basics before you go out and get a loan for your company. Learn how lenders underwrite business loans and why this is a profitable industry. Learn about the different types of loans and facilities, and which types could be helpful to your business. With a general working knowledge you’ll be in a much better position to make decisions. It’s vital that you understand the security that the lender will be using for the loan.

Trust Your Instincts

It’s easy to get caught up in the hype and excitement of a business loan. Loans mean big things for your business, and your head may be swimming in the possibilities. Stay level-headed and after you’ve done all your research and homework, trust your gut. Even if it seems like the perfect loan for your business, if you have a bad feeling about it, move on.

Ask For Help If You’re Not Sure

If you’ve done all of the above, and you still don’t know what’s right for your business, ask for help. If you have an adviser that you trust, then pick up the phone and talk to them. It’s ok that lending isn’t your area of expertise, they will help you and point you in the right direction of who to go and see. And better yet, they’ll incorporate this loan into the broader strategy of advising you and your business.

If you’re wise and careful, you’ll be able to get a business loan that suits your company’s needs and won’t be too burdensome in the long run. There will always be people out there who want to take advantage of you, so be vigilant. Learn as much as you can, take your time, trust your instincts and if you still don’t know, put your hand up and ask for help.