The world of unsecured financing holds a lot of possibilities for business owners who are looking for a foothold in a tough economy. Unfortunately, there is also an unsavory side to lending that borrowers can fall victim to if they are not careful when applying for funds. This article will outline the warning signs borrowers need to be aware of and how to choose safe, reputable lenders.
Taking the Traditional Route
Chances are, if you’re looking into unsecured business loans it’s because you didn’t qualify for a traditional one. Whether it’s the application process, credit check, or collateral requirements, there’s a lot about a bank loan that makes it difficult for struggling businesses to get approved. But did you know that your local branch is actually one of the safest places to go for unsecured financing?
There are no guarantees that the bank can handle unsecured business loans in house (not all of the branch offices are equipped for it), but even if they can’t handle it personally, the bank can refer you to another provider. Banks have lists and resources for businesses in search of reputable lenders. Getting a referral from a bank not only ensures that you’re being sent to a trusted lender, it also gives you recourse should something go wrong.
Word Gets Around
If you’re unable to find information on unsecured business loans through your bank, the next place to go is a small business forum. The internet seems to be a staple of the current business culture; unsecured lending companies are no exception. The Small Business Administration (SBA) Website is a great place to find them. The site has all kinds of valuable information – including a list of vetted lenders – which you can access anytime.
Once you have a list of possible lenders, you can take a two-fold approach to verify they have a trusted reputation. Since you may have found them on the SBA site, you should be able to find evidence of any required certifications or performance reviews. If it’s not there, contact the lender directly and request the information. Back-up your findings with customer rates and reviews of service.
Some businesses make their lending decisions based solely on word of mouth recommendations. This is one strategy that you can employ, but make sure to back it up with due diligence. The further you stray from professionally endorsed lenders, the greater the risk.
The Final Test
The final decision is yours. Here are some questionable lending practices to watch for:
• Avoid “no fax” lenders that don’t require documentation, charge more than 30% interest with unspecified fees, or refuse to disclose the terms of your agreement.
• Ask plenty of questions.
• Trust your intuition. If you think something looks or sounds off base, shop around before you sign any agreement.
This may seem like a lot of work, but it’s better to learn by doing a little footwork than learning based on hindsight. Using these tips will secure the safety of your investment.