Back to business #3: Looking for small business financing?

It’s exciting to see so many “open” signs appearing in store windows across the country. But some companies making the transition to an in-person workplace may find themselves in a short-term cash flow crunch. Even before the pandemic, the FTC raised concerns about deceptive practices related to small business financing. With many companies working to regain their footing, the FTC has tips on protecting yourself when looking for financing.

Consider close to home. If you already have financing through a local lender, that may be the first place to look for additional credit. A hometown financial institution knows you well and understands the business conditions in your community.

Looking online? Don’t rely just on search results. Online lenders may broaden the market for small business financing, but they also require careful vetting on your part. Don’t just type in “small business loan” and assume that the search results and rankings can tell you anything about those companies. Whether you’re considering a Main Street institution or an online company, investigate them thoroughly.

Don’t click on links in unsolicited emails. Scammers know that many consumers and small businesses are looking for loans right now, so they have shifted their pitches accordingly. If an email arrives out of the blue with a financing offer, treat it with the utmost suspicion. Even clicking on a link is risky. It could hide malware.

Ask questions before turning over confidential information. If a random stranger asked you for corporate or personal financial data, you’d tell them to hit the bricks. Follow that same policy when applying for financing. Don’t fill out an online loan application without first determining who’s at the other end. Some companies may appear to offer loans, but what they really do is sell your information to third parties. Other outfits are flat-out fraudsters looking to commit identity theft. Have you spotted a sketchy business financing offer? Report it to the FTC.

Understand the ins and outs of new financing options. When it comes to small business financing, many companies in the marketplace operate differently from what you may be used to. Study the offer carefully before signing on the dotted line. Does the deal require a personal guarantee? What happens if a payment is missed? If there is anything you don’t understand, contact the lender or provider and insist on an answer in writing. When it’s your money on the line, there’s no such thing as a silly question. And if you feel that a sales person is rushing you, that’s a sure sign for you to rush in the opposite direction.

Seek advice from trustworthy experts. Don’t you wish you had a hotline to a successful business executive who could offer you advice on money matters, including ways to access capital? As it happens, you probably do. Reach out to a respected person in your circle – maybe it’s someone in your neighborhood, at your place of worship, or in the local business community – and extend an invitation for coffee. In addition, look into groups like Small Business Development Centers – a public-private partnership of the SBA and universities, state agencies, and the private sector – or other organizations in your area that offer free consulting for small business owners. The important point is that before committing to a financing offer, bounce ideas off a trustworthy person not affiliated with the prospective lender.

Next in the Back to Business series: Back-to-work basics for job seekers