Who can you trust when you need a fast business loan?

Taking on a business loan is a serious financial commitment. As a small business owner stretched for cash, you’ll be keen to make the right decision and borrow from a trustworthy lender. But how can you be sure a business loan provider is legit? Here’s our guide to making safe borrowing decisions.

Right now, we’re all feeling the weight of a whole range of factors that are adding to our cost of living. From the petrol, you put in our car and the gas you use for our heating, to the fruit and veg you buy and the price of a pub meal. Everything is getting more expensive and each of us is feeling the pinch in our wallets.

As a business owner, you’ll know that these financial pressures are also putting a strain on your business's bottom line. You may be considering taking a business loan if you’re experiencing cash flow issues - perhaps for the first time. Maybe you need access to business finance quickly, to help pay bills or salaries, or to take advantage of an opportunity that has presented itself. Whatever your situation, you’ll be keen to borrow from the right source and avoid unscrupulous lenders.

A recent report by the Centre for Social Justice has found that illegal lenders, or Loan Sharks as they are also known, are rife in the consumer lending space. And some will look to target business owners who are short of cash, need quick funding or have a less-than-ideal credit score and are struggling to secure a loan from a bank.

However, these unregistered, unregulated and wholly illegal lenders should be avoided at all costs. Not only will they charge you more in interest than a regulated lender, but they may also use intimidatory, unethical and even aggressive tactics to market their products and then collect repayments. Here’s how to spot a loan shark:

• They will promote their services locally or through social media

• They may approach you in person

• They may use ‘badgering’ tactics

• Their interest rates will be higher than standard lenders

• They may be unwilling to provide you with paperwork

• They may be unwilling to provide you with contact details

• They may demand that you sign up for long contracts or larger loans that you need

If a lender presents any of these techniques or behaviours, steer well clear. Loan sharks are NEVER a good idea. Even if you are having problems obtaining credit due to poor loan management in the past, legitimate lenders should be able to help you.

Business lending isn’t as heavily regulated as consumer lending, so the difference between legal lenders and illegal lenders can sometimes be less obvious. Although much business lending is unregulated, apart from a few exclusions, such as smaller loans for micro-businesses and sole traders, for example, lenders must adhere to the Standards of Lending Practice.

These best practice standards apply to both regulated and unregulated lending and are overseen by the Lending Standards Board. They apply to lenders offering loans to businesses with turnovers of above £25,000. The purpose of these industry standards is partly to prevent Senior Managers from failing to ‘discharge their duties appropriately’, according to the Financial Conduct Authority’s guidance.

Despite the industry standards, commercial lenders usually do not officially owe borrowers a duty of care. This fact has been keenly exploited by banks in the past, several of whom have been found to treat small businesses poorly. The news that big banks aren’t necessarily to be trusted when it comes to small business lending, has led to a major change in attitudes to business loans.

More and more borrowers are realising that alternative lenders are better equipped to offer flexible, fast loans to small businesses than banks ever were. Scandals, such as reports of mistreatment of SMEs by the Royal Bank of Scotland were commonplace a few years back. These horror stories, rightly put SME owners off of dealing with banks, who failed to treat borrowers ethically.

As a result, a number of online business lenders were launched, offering a more tailored approach to business lending. This is where mcl finance comes in, alongside many of our peers. We started offering loans to level the playing field for small businesses and tear down the barriers that stood in the way of obtaining finance for so many smaller business owners.

If you’re considering taking out a business loan from an online lender, here’s what you need to look for:

• A clear website and online presence

• Upfront information about interest rates and fees

• Contact details, including telephone numbers, addresses and email addresses

• Reasonable rates of interest

• A fair and measured approach to marketing and sales - you should never feel pressured into borrowing

• Evidence of a fair approach to collections

• Industry awards

Once you have established that a lender is legitimate, then it’s time to compare them with other providers by checking out the following:

• How much you can borrow

• How long you will have to repay

• Their lending criteria

• Their reviews

• How much a loan would cost

• How quickly you can get the cash once approved

• The application process

Trusting a lender doesn’t always come easy to small business owners, and neither should it. A lender should be able to demonstrate that they have built a reputation for good customer service and fair treatment of borrowers who struggle to repay. Their loans should be affordable and flexible, offered with an understanding that business performance fluctuates.

Follow your instincts when it comes to choosing a lender and never be afraid to call up and ask difficult questions. If a lender is legitimate and customer-focused, they will be happy to give you any information you need to support your borrowing decision.