How to Identify and Avoid Loan Sharks when Seeking Funds for Your Business
Getting funding from banks and other government institutions has proved hard in the past, leading many business owners into the hands of unscrupulous money lenders — loan sharks.
These loan sharks are unlicensed to borrow people’s money and deal unscrupulously with individuals who borrow from them. They charge exorbitant interest that increases at a sporadic rate, harass their borrowers, defame them to people, and more.
This is why you mustn’t be desperate when seeking funding to avoid falling into the wrong hands, which can make your life more complicated than it was before you needed the money. See this screenshot below.
In this article, we’ll examine some signs to watch out for to identify loan sharks and what you can do if you owe a loan shark. Let’s get to it.
5 Signs that a Lender is a Loan Shark
When in doubt, check out for the following signs to know if a lender is a loan shark or a licensed lender who will not stress you out.
1. High-pressure sales tactics
This is the first red flag that reveals loan sharks. Since they are desperate to find individuals to take advantage of with their almost unbelievable loan offers, they employ high-pressure sales tactics to make people apply for loans and even suggest high amounts more than what the borrower may need.
They also create a sense of urgency to force people to take their loans in haste without thinking things through.
Related: 4 Financial Numbers Every Small Business Owner Should Analyze for Growth
2. No legal work or documentation requested
Another sign is that they usually require no form of documentation or legal work when issuing loans. They offer you a huge sum of money with minimal or no documentation.
While this may seem like they want to make life easy and remove the bottlenecks that other institutions have in place, it might also signal that they are not legalized to issue these loans. This means that you cannot pursue your legal rights as a borrower if things go haywire.
3. Lack of transparency
Another sign of a loan shark is the lack of transparency in how they process loans. They usually have unclear terms and conditions attached to the loans and hidden charges, which will only be revealed after the loan has been issued.
They also do not reveal details about themselves and their registration status. They can also request collateral that do not tally with the value of the loan.
4. High-interest loans
This is a common trend among loan sharks. Their interest rates are usually ridiculously high, up to 10% monthly, with an increasing rate for each month that the loan remains unpaid.
These kinds of loans need to be paid off as fast as possible. Otherwise, the interest rate will continue to increase at an alarming rate till one gets neck-deep in debt.
Must-read: What to know before applying for a business loan
5. Coercive tactics applied for loan recovery
This is the most glaring sign of loan sharks. However, one can only detect this after the loan has been processed, and perhaps the borrower defaults on payment. In situations like this, loan sharks resort to unscrupulous, coercive, and even defaming methods to recover their money.
They go as far as sending text messages to individuals on the borrower’s contact list to defame them as a thief or even harass them physically.
What to do if you owe a loan shark
First, don’t attempt to borrow from another loan shark in desperation to clear the first loan. This is key to avoiding getting neck-deep in piles of debts that you may be unable to recover from. So, you need to be calm and not get agitated by their tactics.
What you should do instead is first check how much you have to pay, that is the principal plus interest. Then create a plan on how to raise the funds, which could be by soliciting help from family, or close friends.
You can also read our guide on 7 sources of finance for small businesses for alternative sources to get funds for your business.
Seeking Safe Lending Options
As a business owner in need of funding, the first thing to do is research possible lenders and their legal status regarding lending to people. Afterward, watch out for some of the signs stated above, and if a lender exhibits one or two of those traits, then you need to be wary of them.
At Triift Africa, we issue licensed collateral-free loans of up to 1 million naira to small business owners making less than 5 million naira annually. With us, you can rest assured that you are in safe hands with nothing to worry about.
Need a loan to fund business expenses, increase your offerings, or expand your business? Send a message to us at triiftafrica@gmail.com or apply here.
