Predatory lending is one of the biggest problems facing small business government contractors. Crises are especially fertile ground for these companies to charge desperate contractors high interest rates and hidden fees. Some of these loans will come from the FinTech lenders whose term loans sound great, but have unreasonable rates and fees that double or triple the costs to your company. The most predatory of all financial options are merchant cash advances, which have annual percentage rates (APR) that range from 40 to over 300 percent — all with little or no oversight.
There are three things that contractors should look for when considering whether a lender is a good option:
- If it sounds too good to be true — it is. PPP loans are the exception; they are legitimate because the Small Business Administration is backing them. If you see a private lender offering very low rates with few fees and a complex contract, that’s a red flag. Something costly is hidden in the mix.
- How quickly can you get the loan? Banks take a long time, but they are highly regulated and trustworthy. PPP loans are fast because of the economic crisis. Predatory lenders will provide fast loans…and push you to sign even faster so that you don’t see the hidden fees and interest rates until it’s too late. Make sure your lender is working at your speed, not theirs.
- What financial guidance is your lender providing? Banks have lending limits so that you are able to pay back loans at speeds which match revenues. Our clients know how they will use each dollar we lend them. Predatory lenders will shovel you money, which like illegal drugs feels good in the moment but leads to a major crash on the other end.
Are you struggling to find the right lender? Contact us for a free consultation on what type of financial vehicle is right for your needs.