When it comes to financing your business, there are no “get-rich-quick” schemes or hidden dangers lurking around every corner. However, that doesn’t mean there isn’t risk involved if you elect to take out financing from a third-party source. If you’re not careful, an unscrupulous lender could end up taking control of your business and leaving you with nothing but debt instead of equity. With this in mind, here are some red flags that warn you against a potential scammer—no matter what they say.
When you’re looking to fund your company, lenders will typically ask you to provide them with some personal history on yourself, your team, and your business. That’s not to say that scammers won’t try to get it, but they will almost certainly fail. When scammers try to get a foothold in your personal life, they’ll try to use it against you by making up stories, or asking you to send them money to “prove” that you can be trusted.Don’t ever give in to these requests. If someone won’t take “no” for an answer, they’re not someone you should trust with your finances.
There are many ways to fund your business, and each will come with its own set of terms and conditions. That being said, almost every contract will include a non-disclosure agreement (NDA). If you receive a contract that doesn’t have an NDA attached to it, it probably doesn’t come from a legitimate lender.If you receive a contract that does include an NDA, you should still take the time to read it over carefully. It may be tempting to just sign it so you can get started, but it’s important to understand exactly what it means before you do so.
There are two types of collateral that you could be required to put up as security for your business loan. The first is cash or other liquid assets that you could easily convert into cash if needed. The second is something you own outright (and therefore have no chance of ever being able to sell).For example, if you take out a business loan to purchase equipment, the lender will almost certainly require that the equipment be put up as collateral. The same is true if you take out a loan to cover operating costs.If you’re unable to put up collateral, you may be able to find a lender that doesn’t require it.
The main reason why you might be considering borrowing money from a third-party source instead of taking out a bank loan is because banks typically charge very high interest rates.Banks make a lot of money by lending out money to their customers, collecting interest on that money, and then lending out even more money to other customers.When you borrow money from a third-party source, they’re not collecting a fee for lending you money. They’re earning a profit off of the interest that you pay them.
Many of the benefits that come with taking out a loan may seem like they’re worth it, but they’re almost always more trouble than they’re worth. For example, one of the biggest benefits of taking out a loan is that you’ll be able to pay for your business expenses with no interest due.However, there are likely a few conditions attached to this. First, you’ll have to repay the principal amount, plus interest, at some point in the future. And second, you’ll have to do it as fast as you can, or risk falling behind on your other payments.If you have the cash to cover everything, there’s no reason why you shouldn’t just pay for everything upfront and save yourself the trouble.
When you’re looking to fund your business, there are a lot of different financing options available. And each one will come with its own set of pros and cons.That being said, there are many ways to fund your business, and almost all of them will require you to provide a certain amount of personal information.Before you commit to any financing deal, be sure to do your research and get as much information as you can. This way, you can make an informed decision, and you can avoid falling victim to a scammer.