Borrowing money during lean periods could keep your business alive, but you’ll want to choose your lenders carefully
Key takeaways:
- HOA budgets may tighten as part of the post-COVID recovery period
- Contractors and small businesses can seek loans during these lean times
- Predatory lenders are out there so be aware
- Following helpful tips can help keep your company financially safe
As a contractor, you might notice a downturn in work in the coming months, particularly as HOAs and other communities tighten their post-pandemic budgets. Increases in the cost of materials could also mean you have to charge more to make ends meet, leading to fewer customers.
If you believe a slowdown is only temporary, you could seek a small business loan to keep your head above water during leans times. Interest rates are increasing, but there’s still time to lock in a reasonable rate if you act soon.
Not all small business loans are the same, as the lender you select will influence your repayment terms and overall borrowing experience. Some creditors are predatory or full-blown scam artists, so avoiding these types of lenders should be a priority.
Remember, you don’t have to rush to accept any old loan or act desperately; plenty of reputable lenders are available.
Here’s a look at four tips to help you avoid scams when seeking business loans to keep your small company afloat.
1. Don’t pay upfront fees
A clear red flag is when a lender asks for cash up front just to look at your application. No reputable bank or lender will ask you to pay just to apply for a loan, as they’ll wait until after you’re approved (or denied) to begin charging fees (or not).
There are reports of scam lenders charging service fees to review applications, a clear indicator that the creditor is looking to separate you from your money without providing any value.
In the same vein, be wary of any unsolicited emails you receive offering unbelievable rates after applying for a loan online. This situation often means the lender has sold your email address and the emails could be an attempt to gain access to your personal information.
These upfront fees can make it more challenging to keep your business operating and could take money away from your advertising budget, as well.
2. Ask financial experts
Of course, if you’ve reached the point where you’re applying for a small business loan to prevent your company from going under, you’ll want to cut costs wherever possible. You’ll need to be smart about it, though, as trying to do too much yourself could leave you in even more significant financial distress.
One area where you should avoid cutting costs is when it comes to the financial experts your company trusts. Your accountant, lawyer, or financial advisor, for example, can provide information on reputable lenders while helping you avoid predatory loans.
These experts can even review the terms of your loan before you sign, ensuring it’s a good deal for your business.
Other resources are available for small businesses through the federal government, too. The U.S. Small Business Administration operates Small Business Development Centers throughout the country where you can receive accessible business consulting and financial planning assistance.
Speaking with a SCORE business mentor via email or telephone about potential loans is also an option and doesn’t cost anything.
Seek as much advice and assistance as necessary before agreeing to a small business loan’s terms because financial experts will let you know if a deal is too good to be true.
3. Look at multiple options
It’s easy to forget how many options you have as a small business owner, especially if you’re going through some temporary struggles. You still have power in the marketplace and there are various lending programs specifically for people in your situation.
As you carefully explore your borrowing options, you might find loans for businesses in your specific industry or money that’s available for companies owned by women, minorities, or veterans.
Your community could even have access to Community Development Financial Institutions, which are private organizations aiming to assist economic growth in under-served parts of the country through loans and other assistance.
And, of course, traditional banks and credit unions are options when seeking financial assistance. You don’t have to settle for a shady offer you find on the internet because plenty of reputable lenders are looking to support small businesses.
4. Fast approval is often suspicious
We live in a society where people want everything instantly. For example, when you apply for a credit card or open a bank account, you’ll receive your answer within minutes and consumers have become accustomed to this rapid speed.
Yet, speed is actually a huge warning sign for small business loans because it could mean the lender is attempting to rush you through the process to lock you into a predatory contract before you have the chance to review the terms.
You could find yourself with high interest rates or significant fees when the loan approval comes quickly because the lender is trying to make things as easy as possible in the hopes that you won’t ask any questions.
Traditional loans take time because the lender has to perform credit checks, develop a custom agreement based on your standing, and present the terms to review. Multiple people often have hands in this process. A predatory lender might provide instant approval and ask you to agree to a loan without even seeing your rates or terms.
How to find more work
Applying for small business loans to stay afloat through lean periods shouldn’t be your first option, but it could become necessary if your main clients suddenly have less work for you. You can always seek new customers, however, helping you to maintain and grow your business without taking on additional debt.
VendorSmart is a virtual platform that connects contractors with HOAs and other communities looking for services. Once you sign up as a vendor, community managers can see your profile and hire you based on their needs. Our platform can easily help you fill gaps in your workload, reducing your dependence on small business loans.
Contact VendorSmart today to learn more about becoming a certified service provider.