Predatory lending costs small businesses dearly, and the FTC maintains a consumer complaint database where borrowers report deceptive financing practices. Watch for these warning signs. First, any lender that guarantees approval before reviewing your financials is suspect; legitimate lenders like OnDeck require a 625 FICO score and $100,000 in revenue [3]. Second, upfront fees demanded before funding are a classic advance-fee scam flagged by the FTC.
Third, scrutinize how the cost is expressed. Some short-term lenders quote a “factor rate” instead of an APR, which obscures the true cost. Convert every offer to an annual percentage rate before comparing. According to Bankrate, short-term loans already run higher than bank financing [2], so an opaque rate may hide a number you would reject if disclosed plainly.
Fourth, verify the lender’s standing through the Better Business Bureau before signing. Fifth, avoid daily or weekly automatic debits that exceed your cash flow capacity, a structure that can trigger overdrafts. Read the prepayment terms: a fair lender lets you repay early to save interest, while a predatory one charges penalties. When a contract uses confusing language or rushes your signature, escalate to a financial advisor or your state attorney general before proceeding.