Long gone are the days when small businesses had to rely solely on mainstream banks to get a loan. Business owners now have a lot of options when it comes to accessing finances. However, this has led to rise in the number of predatory lenders and unethical loan brokers seeking to take advantage of your urgent need for small business capital loans. Good business loan lenders should have the best interest of their borrowers at heart and not take advantage of their vulnerability.
How to spot predatory lenders
First and foremost, predatory lenders will spot you before you spot them. They buy databases of contacts and spam them with calls, emails, and mail. You know the calls, "hey Jim, you've just been pre-qualified for $250,000 in business funding simply for waking up this morning!" Predatory lenders can be easily identified from their unreasonable terms and deceptive practices. Their interest rates are extraordinarily high, and repayment terms are short. They include unnecessary additional fees and will not fully disclose relevant information regarding the loan they are offering you. One business owner just called us asking for help, as he got sucked into borrowing $13,000 paying back $1,000 per month for 10 years. WOW!!! Think about that for a second and then do the math. With no regulation whatsoever, most funding companies are nothing more than call centers, ran by overly aggressive salespeople with zero knowledge, background, or experience in business, and/or finance. If you learn to recognize predatory loans, you will save your business from the severe financial consequences of borrowing from the wrong person.
How much capital can you afford?
You should calculate the amount of profit you earn from your firm’s operations and compare it to your debt service: the sum of the principal and the interest on the loan. A minimum debt coverage ratio of 1.0 - 1.2 on the high end is a suitable threshold to use, and if it falls below that, it can mean that your profits won't be enough to make the borrowing worth it.
Be clear on why you are borrowing
Funding a small business should be purposeful and must have a commercial return. It could be a one-off improvement like the purchase of new equipment to generate future returns or a tool to invest in expansion. Small businesses rely on profits and thus, the purpose of borrowing ought to revolve around the agenda of helping you generate more income. Don't just ask a lender for what you qualify for, or "how much can I get." This is a sure fire way to take on way more debt than you can handle, and for no good reason. Have a plan in place, or a use of funds, and stick to that.
Get the best funding options by classifying your loan
The interest rate you pay for your small business loan depends on the amount you borrow and the time in which you have to repay it. You can breakdown short-term expenditures required to restock inventor and long-term spending like buying equipment and negotiate for different terms of repayment.
The growth of your small business is dependent on your smart choice of a strategic funding source. LVRG are experienced and trusted small business finance professionals with an extensive track record in the industry. Call us today if you need fast small business loans offered by a team of experts who care and can advise you appropriately.