5 red flags to avoid when securing business loans

Resources & Tools
April 30, 2024

Business loans, revolving credit lines, and other forms of business financing are important lifelines to any business owner. Whether you own a small-to-medium enterprise (SME) or an industry giant, you’ll achieve more revenue by using borrowed money wisely.

Many entrepreneurs, however, still shy away from securing business loans from legitimate financing providers. Some worry that these providers are predatory, and they’ll charge high interest rates. Some cannot provide the numerous documents required by traditional lenders. Many find the process of borrowing too slow – which is no good if your cash flow gap is threatening to sink your operations now. 

These concerns prompt some entrepreneurs to approach unknown lenders and impostors offering huge loan amounts, lower-than-average interest rates, and rapid processing. Sadly, many of these turn out to be scams. 

For instance, in March 2022, an impostor app on Google Play called FirstCircl Micro Loan used our logo to seem legitimate – promising instant loans of Php 30,000-Php 5 million for just 0.002% interest. The app also claimed a loan processing time of 3 days in exchange for a Php 600 fee. After sending the fee, the borrowers could no longer contact the scammers behind the app.

Beware of apps that impersonate legitimate providers, and transact only with First Circle's official channels.

To avoid these instances and ensure you are only borrowing from legitimate financial providers, learn how to recognize these 5 red flags.

#1. The provider requests payment upfront

Also known as the Advance-Fee Loan scam, this is when a provider asks for payment first so you can access your loan amount. They often pass off the charge as a ‘processing fee’ or ‘convenience fee’ to process your application faster. Additionally, fake financial providers may ask you to pay via untraceable payment methods such as hard cash, cryptocurrency, or e-wallets. 

First Circle will never charge you a fee to process or assess your application and documents. We also do not charge fees before providing you funding. The same goes for most legitimate financial institutions.

#2. Loan amount and interest rates are too good to be true

Is the credit limit being offered higher than all other loan offers you’ve received? Does it have interest rates lower than 1%? Legitimate providers will only issue loan amounts and interest rates that are commensurate with your business income, assets, and capacity to pay. After government funding programs, First Circle is the only legitimate financial provider offering the lowest interest rate in the market – 0.99% – which we only give to loyal clients and new clients with very good financials.

Moreover, scammers do not take the time to appraise your credit history and ability to pay. They purposefully seek desperate borrowers who do not have financial documents, but are willing to pay fees to find quick funding.

#3. Pressure to decide as soon as possible

A business loan requires careful decision-making because it is a serious financial commitment. Good lenders will often walk you through the details of your business loan or revolving credit line before you take them. For instance, First Circle conducts a consultation call with qualified applicants to assess your business needs, answer your questions, and ensure you thoroughly understand the terms of our revolving credit line.

In contrast, fake providers purposely give vague explanations. Instead, they repeatedly insist that their offer is on limited availability, and it will be gone if you don't avail it within the day. Some scammers even make threats like ruining your credit history or blocking you from banks to rush you further.

#4. No official loan offer documents

Scammers avoid paper trails to prevent incriminating evidence and transactions from being traced back to them. This is why they won’t send any documentation of their loan offers. 

On the other hand, there are also predatory financial providers who may be legitimate, but you still want to steer clear from. These predatory lenders do not send official loan documents to prevent disclosing information such as:

  • Terms and amortization schedule of a business loan
  • Breakdown of how interest accrues overtime
  • Percentage of where your loan payment goes to
  • Other fees such as early payment fees and service fees

This is in contrast to legitimate and helpful financial providers, who outline the terms of a loan in an official loan offer document. 

#5. The provider doesn't have a verified online presence

The most glaring red flag of a fake provider is a questionable online presence. Legitimate providers often have a strong online presence – a full-fledged website with valid SSL certificates, social media accounts with the verified blue checkmark, mentions from legitimate digital publications, and reviews on Google or other financial aggregators. 

Some scammers, however, have developed more sophisticated ways to deceive. They can copy a legitimate provider’s branding, duplicate the legitimate website, or duplicate apps and fill it with positive reviews to increase credibility. 

In the case of the fake app FirstCircl Micro Loan, the scammers used our branding, company name, address, and website links to communicate with customers via WhatsApp. The scammers also populated their fake app’s Google Play page with fake five-star reviews.

To stay safe when finding business funding, always ensure that you transact only with trusted and legitimate providers. The best way to confirm a financial provider’s legitimacy is to look them up on the Securities and Exchange Commission (SEC) website. It is the regulatory agency in charge of supervising the corporate sector and protecting the investing public. First Circle is listed as “First Circle Growth Finance Corp”. You’ll also find the list of providers with revoked licenses on the same website.

In addition, always ensure that you are transacting with official providers strictly through the official channels they have listed on SEC or their website. For your reference, here are First Circle’s official channels:

Lastly, do not give out your usernames, OTPs, PINs and passwords to anyone, even if they claim to be from a trusted provider. Legitimate financial partners like First Circle will never request for this information.

Business loans and funding from trustworthy partners like First Circle can truly help your company find success, so don’t let bad actors and malicious forces get in the way of your business growth. By being observant of red flags and taking steps to ensure a provider’s legitimacy, you will find the support that you need.

For more articles like this, check out https://www.firstcircle.ph/blog.

Ready to get your own revolving credit line?

Apply 100% online, and get a credit line worth up to ₱20M. Use and re-use your credit limit anytime you need a business loan.

Apply for a Credit Line

Continue reading