Q. Borrower Beware

Not all sources of lending are good.  In fact, borrowing money from some sources can hurt you more than it can help.

Payday Loans:  Payday loans are usually small, short-term loans of a few hundred dollars with really high interests rates.  They are supposed to be repaid out of the borrower’s next paycheck, usually withing two weeks.  In exchange for the loan the borrower gives the lender a post-dated personal check for the amount borrowed plus the loan fees.  If a payment is late or the check bounces, more fees are added.  What often results is more and more money is owed as a person gets more and more behind.

Title Loans:  If you own your own car, a title loan company will give you a loan in exchange for your car title.  However, they will only let you borrow a small portion of the car’s value and you may lose the car if you fail to repay the loan.  Title loan companies also charge high interest rates, pile on fees, and typically expect to be repaid in 30 days or less.

Pawn Shops:  Even though pawn shops may be a quick way to get cash, rarely will you get the true value of the item you pawn.  They way it works is the pawnbroker keep your item until you can repay the loans plus interest and fees.  If you fail to repay the loan in the time agreed upon, the pawn shop get to keep the item and can sell it to someone else.  Instead of using a pawn shop, you might want to sell an item of value yourself and get what it is worth by cutting out the middleman.

Borrowing money from these sources is rarely a good idea.  Remember, always read the fine print (in fact, read everything they give you!) and understand what you’re agreeing to do.  Focus instead on the other ways to raise capital to make sure you and your business succeed.