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“Do the math” and “read the fine print” seem like such obvious statements when talking about loan contracts. Unfortunately we see examples almost every day where small business owners have rushed into a loan contract without doing the simple math. Many of the new online lenders are very aggressive telemarketers and are “bending the truth” about the features and costs of quick loans.

The example below is typical of what we come across every day.

The client was “sold” what she believed to be a $10,000 short term loan. She was told the cost would be 16{defcff05e0297cdbbfd01fb4267eded39e8d3cde8a3649f97f3e1f2938f8af6b}. The table below is from the actual contract. She signed the contract.

Purchase Price$10,000
Amount Sold$14,100
Specified Percentage16{defcff05e0297cdbbfd01fb4267eded39e8d3cde8a3649f97f3e1f2938f8af6b}
Daily Minimum Payment$141
Payment Schedule100 days
Underwriting Fee$300
Origination Fee$1000


Here’s the simple math:

After the $300 underwriting fee and the $1,000 origination fee “came off the top” the client actually received $8,700. The amount she needs to repay is $14,100. The total cost is $5,400 ($14,100 repaid – $8,700 received).

She paid $5,400 to get $8,700 which is 62{defcff05e0297cdbbfd01fb4267eded39e8d3cde8a3649f97f3e1f2938f8af6b}. She had to repay the loan in 100 banking days (about 4.5 months) so if you annualize the rate it’s about 165{defcff05e0297cdbbfd01fb4267eded39e8d3cde8a3649f97f3e1f2938f8af6b}.

We advised her to contact the lender and try to negotiate an early payout at a reduced rate. There was no contact info on the contract and all she had was an email from the lender. Turns out it was a loan broker from New York. He never returned her emails.

Read your contract, do the math, deal with a Canadian direct lender, and get a couple references.

By the way, Company Capital could have provided $8,700 to this client for $870  – not $5,400

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