avoid loan sharks when applying business loan

How to Avoid Loan Sharks When Applying for a Business Loan

Almost every business faces financial troubles or needs capital at some point. It may be for meeting tax debt, creditor demands, or funding stock purchases. There are many reasons why a company needs a short-term funding solution.

In such situations, one of the preferable options is a business loan. But, banks aren’t always helpful, so there’s a chance that you may get lured by some illicit lenders, also known as loan sharks. It’s reasonable because they appear to be the simple solution to your financial problems.

How Do Loan Sharks Work?

Loan sharks create an impression of speed, convenience, and ease of access, unlike traditional lenders. They are less concerned about your needs, credit score, or credentials. These lenders will offer you credit at extremely high interest rates and several hidden charges that you’ll uncover later.

Not all loan sharks operate in the same manner. They aren’t always disguised as gangsters and operate out of smoky back rooms. Loan sharking operations appear legitimate, and victims are often taken aback when they learn they have been duped.

Loan sharks are even hesitant to release you once they have a grasp on you. After all, if you keep up with your payments, you’re a good source of cash for them. So, if you are looking for finance options for your small business, consider alternatives like a 504 refinance program.

How to Avoid Loan Sharks When Applying For Business Loans

Even if you are in great need and worried that you wouldn’t qualify for a traditional business loan, you should look for reputable and competent moneylenders. Always make sure your loan application specifies the whole amount you’ll be expected to repay. Never sign a loan deal with a cold caller, whether in person or over the phone.

When confirming a loan arrangement, make sure you have all of the necessary written documentation and that you’ve read and comprehended it. Never sign a loan contract without first determining the terms of repayment. Do not pay any fees upfront or give up your bank account information without checking the caller’s information.

Keep in mind that a reputable lender will never ask for your personal belongings as collateral. Don’t work with a lender who requires you to produce your driver’s license, passport, or other personal documents while applying for a business loan.

Warning Indicators to Watch Out For

To be extra safe, watch out for some common warning indicators to protect your company from actual loan sharks. Here, they are:

• High or hidden fees: Reputable lenders will explain all expenses upfront and not tack on extra charges when you aren’t looking. But loan sharks will.

• Repayment terms that are difficult to meet.

• No background check: Fair lenders will conduct a background check to ensure that you can repay the loan.

• Lenders who are not licensed and do not conduct credit checks.

• Interest rates are astronomically high, whereas reputable high-risk lenders charge higher but more manageable rates.

• Unclear loan terms and refusal to explain, and even if you pay on time, you may be charged exorbitant rates or surcharges.

Even if you have bad credit health, numerous trustworthy lenders may deal with you. Hence, ensure the protection of your company from getting stuck in a debt cycle that you may never get out of easily.


A business loan can be a great asset if used correctly, but you also need to know more about loan sharks before applying for one. Asking many questions, doing a lot of research, and checking reviews are the best ways to protect your business from such predatory financing scams. Take your time, inquire a little more about moneylenders, request a list of references, read through the fine print, and make sure you understand all the terms correctly.

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