The lending marketplace is more diverse now today than ever before, and this is a very welcome change from a time when banks and credit unions ruled the industry. Clients have more choice, more leverage, and more freedom – and all of these are big steps in the right direction!
However, just as it does everywhere else, the wise adage buyer beware applies to loans for working capital. And so with this in mind, here are 4 questions you should ask BEFORE your apply – not after:
What’s the full cost of this working capital loan?
Refuse to sign anything that doesn’t clearly spell out EXACTLY how much your working capital loan will cost. Some agreements covering loans for working capital are ridiculously – and deliberately – confusing and convoluted. Demand clarity, or walk away.
What are the repayment terms?
Again, some agreements covering loans for working capital are deliberately “fuzzy” on the repayment terms. This is a big red flag! You should have a clear, full understanding of how you’ll be expected to repay the loan (including when, how much, dates, methods of repayment, and so on).
Are you a lender or a broker?
Many so-called lenders…aren’t. That is, they’re brokers who shop applications around. Now, there’s nothing fundamentally wrong with this PROVIDED that you’re aware of the risks.
To start with, you need to know that you’re working with a middleman, and that even if they aren’t being paid directly by you, they are being paid by the eventual lender. Does this mean that they’re biased towards certain lenders? Maybe – or maybe not. But it’s a possibility, and it’s one that you need to be aware of.
In addition, you need to know that brokers may do more than shop your application around – they may subject you (without your directly knowledge) to repeated credit score inquiries, since each prospective lender will want to run their own report. This high frequency of credit inquiries in a short span of time can severely damage your credit score, and it can take several months or even years to recover. Be VERY careful here and make sure you aren’t exposing yourself to lasting credit damage!
What happens if I need more money – or if I have too much?
Down the road, you may find that you need additional funds to cover an unexpected expense, or to take advantage of a golden opportunity. What’s wrong with this? Well, some agreements covering loans for working capital will actually penalize you if you apply for a second loan, because the funds you get will automatically (i.e. you won’t have a choice) be used to pay down your first loan – except you’ll STILL pay the fees as if the first loan was active! This unethical practice is called “Double Fees” and it’s surprisingly widespread.
Or, you may find that you have some “dead money” sitting in your account – perhaps because instead of hiring 3 new staff members you only needed 2, or because you negotiated a great deal on inventory or equipment. You want to ensure that you can pay your working capital loan back early with ZERO pre-payment penalty of any kind.
The Mulligan Funding Advantage
At Mulligan Funding, we’re proud to lead the way in the lending marketplace by offering loans for working capital that:
- Transparently identify ALL costs and expectations of all parties.
- Clearly note all repayment terms and obligations, so that there are no unwelcome surprises down the road.
- Are 100% funded by our company. We are NOT a broker, and we don’t shop applications across the country. We privately fund all of our loans.
What’s more, our clients can apply for a second working capital loan and, if approved, they’ll have access to 100% of the funds (i.e. the funds won’t be used to pay down their first loan). At the same time, our clients can repay their loan early if they wish to reduce their interest costs, and there are no prepayment penalties or obstacles of any kind.
Call Mulligan Funding at 855-326-3564 to discuss your financing options today!