Entrepreneurs wanting to grow and scale often get on the hunt for more business capital. That money can be used for more products, services, marketing, and so much more. When you have good credit and cash flow, it is easier to go to the bank and/or get investors to secure capital. However, what can you do when you do not have the cash flow or the credit to get more money into the business? Lots of Entrepreneurs look to alternative ways to get money to fund their business growth. Some tend to look at the now and not the later.
Most people know the dangers of getting a payday loan or title pawn, however, many of those same people do not look at business loans with the same critical eye. But, why? Mostly because business loans most often look different and feel different, however the objective is the same: for the institution to make money off of super high interest that you may never be able to pay back. There is a name for this scenario and it is called Predatory Lending. What is it exactly? It when someone lends you money that has unfair abusive loan terms for the person receiving the money.
Predatory Lending is common and it can definitely negatively impact you and your business. For example, 3% interest vs 35% interest is a huge deal. They may look good at the time because you need the money. But what happens when you receive the money and cannot pay it back? It can really hurt your business and sometimes roll over into impacting your personal life and finances. For example, you could create a need to dip into personal money or bankrupt the business cutting off income needed to fund your life. Avoid Predatory Lending opportunities at all costs, but if you have no other choices, think about these factors:
- Have I exhausted all my options for funding?
- If I take the money, will I actually be able to pay it back?
- Are the interest rates feasible?
- How long will it take me to pay it back?
- Do I have a realistic plan to pay it back and continue to pay everything else?
- Is it really worth it?
If you ask yourselves these questions and still decide to take the loan, make it a priority to stick to your plan and pay the money back as soon as possible. Never lose sight that you are taking a huge risk, so stick to the plan. Building wealth can be hard, but getting into uncontrollable debt is easy.
Download my free Worksheet that will help you to compare business loans, determine if they are worth the risk, and create a repayment plan.