Wednesday, May 21, 2014

Unsecured Loans: How to NOT Be Taken Advantage Of

While most unsecured lenders are honest financial firms a lot of people who are looking at getting a loan for personal or business use are concerned about scammed. Like any other, this industry certainly has some bad apples and in some cases an unsecured loan isn't even the best option. It's not quite as cut and dried as creating a scam lender list and an honest lender list. I'll share some tips to making sure you aren't being taken advantage of and that you find the best lender for your need.

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#1 way to not is be scammed is...

Follow your common sense instincts, If it seems too good to be true it probably is. Take all of the factors below into account when deciding on an unsecured lender to business with.

Google search them, but...

This should be common sense but we'll list it anyways. In this day and age you should Google search pretty much anyone who you are considering doing business with. If a company has a lot of negative results it's a sign that you should further investigate before making your decision to do business with them.

A few things to be aware of

Bad search engine results aren't so bad - If you do enough business inevitably you will eventually catch some bad press. What's more important is to see how the company responds to their bad press. Google likes to show any negative search results they can find on the first page of Google, especially for bigger companies or brands. This creates a situation where sometimes a company has 90% positive search results and 10% negative search results but on the first page of Google you can still find the negative results getting attention. Unfortunately there are some unscrupulous internet marketers that take advantage of this. They will post a scathing blog about how a large brand is a scam, then they will pepper that blog with affiliate links or subtle marketing messages for that brands competitor. It's also important to look at the negative results in proportion to size of the brand, for example a big company will eventually catch some kind of negative press, this is normal. However if a small firm with few customers has negative press it's a bad sign. Feel free to ask your contact at company about any negative results, an honest firm should have a good explanation for this.

No search engine results is not good - A definite red flag is if the company has no or very little internet search results. This is a possible indicator that the company was recently formed as a front organization. If a company has been actively conducting business for several years there should be at least several pages of search results. It should be a mix of online business directory listings, articles, blogs, social media pages and media stories. If all the company has is their website and few business directory listings it may be cause for concern.

Look at their history

You can look up the history of company through the secretary of state website for the state they are located in and see when they were formed and if they are in good standing. New companies aren't necessarily bad but if that's the case you should check the backgrounds of company's management.

Are there real people behind the company?

The company should have a page on their website with names and bios of their management team. The management of progressive companies maintain blogs, Twitter accounts and are easy to find on social media. Note that some people prefer to keep their lives private so their CEO probably doesn't want a friend request on Facebook, but it's a warning sign if you can't find any trace of the management team by Google searching their names.

Better Business Bureau

It's important to understand that the BBB is a for profit business in the advertising industry itself. The businesses with A+ ratings have them b/c they are paying for them. Also financial firms sometimes are forced to start with low grades and work their way up. However if a company has multiple negatives on the BBB it's a sign for concern.

Validate their testimonials

It's easier than ever today to manufacture testimonials on the internet. Video testimonials are better but those too can be easily faked. One of the best barometers of veracity is to Google search the names or company names of the testimonials.

While most firms respect the privacy of their clients, it's not a bad idea to ask them to provide references with phone numbers or emails of their satisfied clients. If they did good bye these people they should be willing to have a short conversation w/you to verify the firm.

If the company or its management have recommendations on LinkedIN it's a very good sign, as LinkedIN only displays recommendations written by other, verified members. Not everyone knows about LinkedIN though so if you don't find your lender there suggest they open an account (which is free).

Beware of Aged Corporation or Shelf Corporation finance schemes

The pitch is that an aged corporation/shelf corporation that has had multiple lines of credit ran through it for several years and is in the eyes of bank an A+ credit borrower. What you do is buy the corporation and then the seller will include lines of credit from major banks. Since the corporation has great credit you don't have to personally guarantee the risk that has been taken. While corporate credit is a very real thing and can be an important part of finance deals we haven't been able to find any legitimate example of aged corporations working in this way as finance instruments.

Interest Rates

Lending loans with no collateral is a risky business that financial firms hedge by charging high interest. However you should consider how much risk the firm is taking in your deal, are you personally guaranteeing your loan? Is the interest rate based upon your personal or business credit score? For example,, one of the leading online lenders charges as much as 35% APR for bad credit borrowers who have personally guaranteed a loan. Some hard money real estate lenders will charge double digit interest in addition to 'points' (a percentage of the transaction amount), however most of the time these are none recourse loans meaning that they will not pursue your assets (Personal or business) if they are not able to cover the loan amount by the sale of the real estate. On the other hand some credit card or finance institutions offer rates as low are 0% for borrowers with excellent credit or history.

Search for 'small lies'

If you've done your research thoroughly on the firm you are considering doing business with you should have a lot of information about them. Give your contact with the lender a call and give them the opportunity to tell you a 'small white lie' about something you know about them. If they are willing to be a little dishonest about something small it's not a great sign.

Deal locally

This isn't always possible but it's ideal to work with someone local. They are less likely to screw you as you can tell mutual acquaintances or come by their office.

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