What is a predatory business loan?
Small businesses need money, but loans are tough to come by. Some tap the equity in their homes, and some go the SBA route, but the internet has opened up a whole new world of alternate lending, character based lending, and crowd-sourced lending. How do you know if you are getting a fair deal?
I’ll be participating on a panel Thursday October 18th discussing the 5 Signs of a Predatory Loan. Joining me will be two of my favorite lending partners: P2Bi and Colorado Lending Source. We’ll share tips to identify predatory loans in the wild and give you take-home resources so RSVP here to get the inside scoop.
Here’s a couple of my favorite tips:
Loans with fees instead of interest (APR)
Traditional loans use Annual Percentage Rate (APR) as the standard measurement of interest. You see it on car commercials all the time, and probably bought your home with a fixed rate APR for 30 years, say 5.5%. Several predatory loans will charge fees instead, for example 2% per month. Upon quick glance, 2% is less than 5.5% so the loan seems like a good deal. But the assessment period is different – one month v. one year. As a result, a 2% monthly fee is closer to 24% APR!
Loans with daily ACH payments
Why would a lender demand daily ACH payments? It’s because they are used to preying on unstable companies. They build daily ACH draws into their business model to mitigate the risk of default – as soon as you get cash, they take it. As a business owner, you can’t give up this control. You need to decide where your cash goes – for example, to buy inventory or advertisements and fuel sales. When you give up control of your cash, the business can be bled dry.
Stop by the event to learn more, I look forward to seeing you there!