Business LendingBureau

Guide

How to spot a predatory business lender before you sign

Small business lending is far less regulated than consumer lending. These are the specific signs, and the checks that take ten minutes.

Reviewed and updated · How we research this

Commercial lending sits largely outside the consumer protections most people assume apply. Truth in Lending does not generally cover business credit. There is usually no federally mandated APR disclosure, no cooling-off period, and no cap on what a commercial financing agreement can charge in most states — though a growing number now require commercial financing disclosures. The protection you get is mostly the protection you bring.

Walk away immediately

  • Any fee demanded before funding to "secure", "insure", or "release" a loan. Legitimate fees come out of proceeds or are paid at closing.
  • Guaranteed approval before underwriting. Nobody can do this.
  • A refusal to state the total dollar payback. Every real lender can answer this instantly.
  • Pressure to sign today because the offer expires. Real offers survive a night's sleep.
  • A confession of judgment clause. You pre-agree to a judgment against you, sometimes without notice or a hearing.
  • Blank spaces in a document you are asked to sign.
  • Requests for your online banking username and password rather than a read-only connection through a service like Plaid.

Slow down and investigate

  • The rate is quoted only as a factor and they resist converting it.
  • A broker will not disclose their commission, or asks you to sign SBA Form 159 blank.
  • The contract arrives at signing rather than in advance for review.
  • The entity you are signing with is not the entity you have been talking to.
  • Automatic renewal or evergreen clauses, especially in factoring agreements.
  • The lender is not registered to do business in your state and is difficult to identify.

The ten-minute verification

  1. Search the company name plus "lawsuit" and plus "complaint"

    Pattern litigation from borrowers is the single most informative signal available, and it takes two minutes.

  2. Check your state's Secretary of State

    Is the entity registered? Does the name on the contract match the name on the website?

  3. Check the CFPB complaint database and your state Attorney General

    Commercial lending is less covered here than consumer lending, but patterns still surface.

  4. For an SBA loan, verify the lender is actually an SBA lender

    Ask for their SBA lender identification and check with your local SBA District Office. There are people who take fees to "process SBA loans" and are not SBA lenders at all.

  5. Search the UCC filings in your state

    See what liens exist against you already, and whether the lender files aggressively.

Where to complain, and who actually helps

Your state Attorney General
The most effective route for commercial financing complaints in most states, particularly those with commercial financing disclosure laws.
The SBA Office of Inspector General
For fraud involving SBA programs specifically.
The FTC
For deceptive advertising and business opportunity fraud, at reportfraud.ftc.gov.
The CFPB
Primarily consumer-facing, but relevant where personal credit was used.
A commercial finance attorney
If you are already in a bad agreement, this is the one on the list that changes outcomes. A consultation costs a few hundred dollars against contracts worth far more.

Questions people actually ask

Are business loans regulated like consumer loans?

Largely no. Truth in Lending generally does not apply to business credit, so there is often no mandated APR disclosure and no cooling-off period. The Equal Credit Opportunity Act does apply to business credit, which is why you are entitled to the reasons for a denial. A growing number of states now require commercial financing disclosures.

Is it legal to charge 200% APR on a business loan?

In many states, effectively yes, particularly where the product is structured as a purchase of receivables rather than a loan — which is exactly why merchant cash advances are structured that way. Courts have recharacterised some agreements as disguised loans subject to usury limits, but you should not plan on that outcome.

What is a confession of judgment?

A clause where you pre-agree that the funder may enter a judgment against you if it declares default, sometimes without notice or a hearing. New York restricted their use against out-of-state borrowers in 2019 and other states have acted since. If you see one, treat it as a reason to stop.

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