Question 1

What is a Confession of Judgment and why is it dangerous?

Accepted Answer

A Confession of Judgment (COJ) is a legal clause where a borrower waives their right to a defense in court, allowing the lender to automatically enter a judgment and seize assets upon a claimed default. While many states have restricted or banned COJs for small business loans, some predatory lenders still include them in fine print. At BizBee, we prioritize lenders who use standard legal protections rather than stripping you of your day in court.

Question 2

How does 'double-dipping' work in predatory lending?

Accepted Answer

'Double-dipping' occurs when a lender refinances your existing balance into a new loan but charges the full fee (factor rate) on the remaining principal of the old loan again. This results in you paying twice for the same capital, significantly increasing your effective interest rate. You should look for lenders who offer 'origination fee waivers' or 'net funding' when renewing to ensure you only pay for the new capital received.

Question 3

What are the typical qualification traps for high-risk loans?

Accepted Answer

Most predatory lenders target businesses with FICO scores below 550 and monthly revenues under $10,000, as these owners often feel they have no other options. They may offer daily payments that represent 30% or more of your daily credit card sales, leading to a debt spiral. If a lender refuses to disclose an APR or a total payback amount in writing, it is a significant red flag regardless of your credit score.

Question 4

Why are MCAs often associated with predatory lending?

Accepted Answer

A Merchant Cash Advance (MCA) is technically a purchase of future sales, not a loan, which allows it to bypass usury laws that cap interest rates. While some MCAs are legitimate tools for bridge funding, others hide effective APRs of 200% or higher behind 'factor rates' like 1.45. Always compare the total cost of an MCA against a true business line of credit or term loan to see the massive price difference.

Question 5

Should I ever pay an upfront fee for business funding?

Accepted Answer

Legitimate business lenders and brokers, including BizBee Funding, are paid by the lender upon successful funding or through a clearly disclosed success fee at closing. You should never pay an 'application fee,' 'processing fee,' or 'underwriting fee' before you have received a formal approval and a contract. If a company asks for $500 to $2,500 upfront just to 'look at your file,' they are likely a fee-scam operation.

Question 6

What is loan churning and how do I spot it?

Accepted Answer

Loan churning is the practice of repeatedly refinancing a borrower into a new product shortly after the initial funding, often just to generate new origination fees for the broker or lender. This strategy rarely provides enough new capital to justify the additional costs and quickly erodes the business's cash flow. Be wary of any advisor who calls you within 60 days of funding to offer a 'top-off' that replaces your existing loan.

Question 7

Is 'guaranteed approval' a sign of a predatory lender?

Accepted Answer

Real business lenders require documentation like 3–6 months of bank statements, tax returns, and a credit pull to assess risk. If a lender promises 'guaranteed' approval or 'no-doc' loans for six-figure amounts without any underwriting, they are likely harvesting your data or preparing a predatory contract. Legitimate funding is based on your business's ability to repay, which requires a look at your financial health.

Question 8

Are blocked accounts or lockboxes considered predatory?

Accepted Answer

A blocked account or 'lockbox' arrangement gives the lender direct control over your primary business bank account to ensure they get paid first. While common in some high-level asset-based lending, if required for a small working capital loan, it can paralyze your ability to pay payroll or rent. Always ask if your payments will be via standard ACH or if the lender requires direct control over your incoming deposits.

Requirement	Typical standard
Minimum FICO Score	550+ (lower for specific asset-backed) Justice is served with transparency.],[
Time in Business	6 Months+ (Startups see limited options) balance risk.],[
Monthly Revenue	$10,000+ (Verified via bank statements) scan.],[
Debt-to-Income Ratio	Maximum 50% of available cash flow.],[
Required Documentation	3-6 Months Bank Statements, No upfront fees.],[
Ownership Percentage	51%+ ownership by the primary applicant.],[

Avoiding Predatory Business Lenders

Key takeaways

Who this is for

What you need to qualify

Best funding options

Business Term Loans

Business Lines of Credit

Invoice Factoring

SBA Loans

When this makes sense

When to be careful

Get Funded Without the Red Flags

Common questions

Ready to Join the Hive?