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Before You Sign A Business Loan

Be on the lookout for these 6 red flags


Loans Concept. Word on Folder Register of Card Index. Selective Focus.

Loans can be a great solution when you’re in need of money that you don’t have. For example, to get your brilliant idea or product off the ground, you may require a business loan. That said, it’s essential that you don’t jump in and sign on the dotted line without reading the fine print.

Sometimes, when you’re motivated to get something done, you end up missing red flags that can compromise your success. If you’re researching business loans or are about to sign for one, here are six red flags to watch out for.

 You’re Guaranteed to Get a Loan Before your Application is Even Processed

No legitimate lender is going to fund business loans to people whose applications haven’t been processed. They may uncover something that makes you a risk. Lending is still a business, and part of how it works is taking a risk on solid applicants. No one is guaranteed dependable until they provide the necessary information and it’s verified.

The Company Has Limited Information

No phone number? No physical address? Limited online information? Those are red flags waving wildly. Think about banks and credit unions, and even small, reputable lenders. You can typically find them online, on the Better Business Bureau, or in a brick and mortar location. If a potential lender can't provide that information, search for business loans elsewhere.

There are Upfront Fees for the Loan

Other than a down payment for a house or car, you generally aren’t handing over money to secure a loan. You may even have fees on particular types of loans, but not usually business loans. If a lender is asking for money upfront, and the purpose is vague, don’t sign.

You’ll Get Money, Even with Bad Credit!

Most lenders aren’t going to promise money to someone with poor credit, and if they do, your rates may be exorbitant. Would that even make sense for either the lender or you? Another avenue to watch out for is if they advertise it as a credit-building loan.

Odd Advertising or Cold Calls

Most lenders don’t seek out people for business loans, and Craigslist generally isn’t where you’ll find your lender. If the avenue to finding the loan doesn’t make sense, then it probably isn’t legit.

Little Work Involved in Securing the Loan

Business loans often require a business plan, financial history, and a loan repayment conversation. If you haven’t had to provide those details, it may be a scam.

A little research goes a long way in safeguarding your future enterprise. Stick with trusted names, and always evaluate contracts before signing. Further, question less typical business loans, like peer-to-peer lenders or unknown investors. The more you know, the less risk you have of falling for a scam.

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