There’s nothing worse than rushing into a loan application in order to receive the cash as fast as possible and then realizing you have done business with a loan shark or someone who’s involved with predator lending. Loan sharks are usually unlicensed lenders who charge high interest rates on their loans and tend to act irrationally when borrowers do not make payments on time or in full.
Aside from the danger of loan sharks, there are plenty more things to be careful about when applying for financing:
- Is the Interest Rate fixed or variable? A fixed interest rate is set pre agreement and does not change throughout the term of the loan. A variable rate usually changes during the term of the loan and can decrease or increase the interest paid by the borrower. So the question here is if the rate is variable, when will it change? How often with the changes occur? Will you be notified about the changes?
- What is the schedule of payment? Are there Late payment Fees?
- The lender’s specific definition and guidelines for ‘defaulting’ and any other penalties
- Scams- Skepticism may arise when lenders approve loans rather quickly. You always want to check the lender’s credibility. As much research they do on you and your business before loan approval, you should be doing the same amount of background research on them. The Better Business Bureau is a great resource for looking up any references or complaints about a particular company.
When applying for a commercial loan, it is extremely important to look over the lenders loan documents multiple times, to make sure you are comfortable and familiar with their policy. Approaching a lender with knowledge on their agreement and history in lending is important for putting the financing of your business in their hands.