While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the Office of Inspector General of the FDIC broadly defines predatory lending as “imposing unfair and abusive loan terms on borrowers.”
Even after the recession, banks are making fewer small business loans under $1 million. This has given rise to online alternative lenders who are trying to fill the financing gap left by the banks. They specialize in short-term financing, with an easy application and fast money. While many are responsible small business lenders, you need to be able to recognize potential predatory lenders that provide small business loans with unfair terms that could potentially damage your business. To protect yourself and your business, ask lots of questions and watch for red flags that might signal you are dealing with a predatory lender.
Learn about how to spot predatory lending practices, and much more, by downloading our Small Business Financing Toolkit.