Guaranteed Approval Business Loan: Is It A Scam

Guaranteed Approval Business Loan

The past couple of years have proven to be disastrous for small and medium business owners across the world. The negative financial effects of the COVID-19 pandemic saw millions of SMEs and MSMEs close shutters. This not only lead to rising unemployment but also affected national economies.

When the emergency brakes were applied to the economy in the form of lockdowns, business owners saw their sales and revenues up. Businesses were closed for months on end, leading to the exhaustion of whatever little savings SMEs and MSMEs usually have. With governments and lenders (traditional banks) not coming to their aid, the situation turned precarious.

Ever since the pandemic hit, there have been numerous reports that have come out on how cash injection at the right time could have helped SMEs and MSMEs sustain themselves. With governments and banks facing the other way as far as financial credit was required, many businesses turned to the not-so-formal lenders.

In this article, we are going to shed light on a financial practice that gained traction during the pandemic- Guaranteed Approval Business Loans. We examine how true their propositions were and explore how they were able to grow and function in the aftermath of the pandemic.

Bad Credit Loans for SMEs and MSMEs: What Really Happened?

Bad Credit Loans for SMEs and MSMEs: What Really Happened?

With almost all major economies contracting, banks and other traditional lenders tried to reduce their risk exposure. They became more guarded when it came to extending financial credit to businesses. Typically, banks look at the cash flow of a business as one of the most important parameters when extending credit.

The pandemic, lockdowns, and restricted working hours meant that SMEs and MSMEs could not show enough cash flow on their books. No one really knew when the situation will start improving. In place of showing confidence and injecting cash into the economy, traditional lenders pulled back and became far more risk-averse.

When this option fell through, many informal and non-traditional lenders emerged offering immediate loans to SMEs and MSMEs. Hoardings, billboards, newspaper advertisements with Guaranteed Approval Business Loans came up all over the place. Traditional marketing was complemented with digital marketing on search engines (ads) and social media.

SMEs and MSMEs required immediate cash injection because of the following reasons-

  1. They had to pay salaries to their employees to retain them as well as ensure that their families are looked after.
  2. Cash infusion could have helped them adopt flexible and agile strategies like opening up an eCommerce platform or adding an online delivery option to their business.
  3. Diversifying into some other profitable areas that were in demand during the pandemic era. Buying new infrastructure, raw materials, etc. were some reasons for cash demand.
  4. Paying rent, maintaining office space, and factory premises to ensure some form of continuity. Starting something again after stopping for months on end is difficult.
  5. Having some form of financial security to help employees who had contracted the virus and needed medical care and intervention. This saw a lot of the savings get exhausted.

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Guaranteed Approval Business Loan: Myth or Reality?

Guaranteed Approval Business Loan: Myth or Reality?

Let us address this issue head-on. Is there anything like a Guaranteed Approval Business Loan?

The answer is NO!

We have already mentioned that for a financial lender, looking at the credit score of a business is essential. Yes, you might not have the perfect score, but if you have something very bad, almost all lenders will reject extending any kind of credit to you.

You might turn around and say that many lenders had extended credit to SMEs and MSMEs during the pandemic. Yes, you are right. However, there is always a catch!

Let us look at that in some detail-

  • Even informal lenders will not approve of financial credit to just about any business. They will look at the sheets, examine the assets of the business and ask for collateral if it is possible. They aim to secure their credit or loan as far as possible.
  • When the loan is approved from such financial lenders, the rate of interest on the same is astronomically high. We are talking double the interest rates of what an established or traditional lender would ask for. If they are taking the risk, they want the returns.
  • The loan amount is not huge. In fact, even if you get some kind of financial assistance in the form of loans, the amount will be no more than one month of your businesses’ revenue earnings. This means that it is mostly a stop-gap
  • The repayment period needs to be as low as possible to ensure that you do end up paying high-interest rates that might in most situations even exceed the principal amount. In other words, this can lead you into some kind of a debt trap.

How can SMEs and MSMEs Protect Themselves from Predatory Lenders?

How can SMEs and MSMEs Protect Themselves from Predatory Lenders?

Businesses need to realize that when it comes to raising credit for their business, there are multiple levels of institutions that exist in the market.

The worst among them are predatory lenders whose sole aim is to make sure that you default on the payment. They work with collection agencies and debt collectors and charge exorbitant rates of interest.

For these agencies, it does not matter what your credit score is. They will extend you the loan but do so on conditions that transgress the laws of financial propriety.

You should stay away from such predatory lenders. The easier it is for you to gain access to credit, the more problematic would be the terms and conditions.

When borrowing money from such institutions, you should take stock of your repayment conditions. If you can repay the loan as soon as possible, you can consider this, though we will recommend that you explore more credible options.

There are two things that you need to keep in mind-

  1. Borrow a small amount of money; one that you are sure of repaying
  2. Make the complete repayment as soon as possible to avoid high-interest rates

If you can do this, then you will be able to avoid the dangers and pitfalls of borrowing money from unsolicited sources.

The Final Takeaway

The last few months have seen governments all over the world wake up to the reality of these predatory lending institutions. Several governmental schemes for economic reconstruction have been rolled out making it easier for SMEs and MSMEs to secure formal credit.

Given the damages that have been caused over the last two years, the period of economic recovery will be quite long. If you have any other questions, that you would like us to address on guaranteed approval business loans, please let us know in the comments below.

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