So, you're receiving a barrage of marketing emails, promoting the ease of application for a business loan? With messages like;
You're "Pre-Approved" for a business loan - Apply Now!
and;
Get a Government-backed loan of up to £250,000 - Check to see if you qualify.
Whilst these marketing messages alert businesses to the fact there are places to go outside of the mainstream banks for access to finance, they can often be misleading.
Here's why...
1. They often fail to provide full loan details and terms. Emails try to entice businesses to apply or enquire, but may not give transparent APR rates, exact loan amounts available, repayment timelines etc. Lack of key loan details is misleading.
2. They sometimes promote loans that a business may not qualify for. Mass emails often promote loans like "government-backed low rate loans". But many factors decide eligibility, and if a business unlikely qualifies, then promoting these loans is misleading.
3. They can overstate how easy securing financing may be. Sending a blanket email stating "Get up to £500K in business funding today" oversimplifies the lending process. In reality an intensive vetting process determines loan decisions.
4. Risks and fees may not be clearly highlighted. Emails are designed to get leads and loan applications. So they rarely highlight late repayment penalties or arrangement fees upfront. Failing to set right expectations is questionable.
5. Appropriateness of the loan product for each business is unknown. Mass emails blast the same "one-size-fits-all" loan product. But specific loans suit different businesses based on size, age, sector, needs etc. With no personalisation, the emails can mislead.
A few key points to note; unless you're applying to a lender that only offers "Government Backed" Loans or RLS Loans as the core product, you cannot request an RLS loan. These loans are subject to application and ONLY available at the discretion of the lenders that are administering the loans.
The term "Government-backed" in itself can be seen to be misleading. The "Government-backed" element of an RLS loan ,means that there is more protection for the lender, NOT the borrower.
A "Government-backed" loan, or RLS makes it easier for lenders to provide the cash required to businesses that are deemed a higher-risk. The government provide a "guarantee" to the lender that ensures a claim back to any funds that may be lost as a result of lending to a risky business. It does not mean that businesses don't have to give personal guarantees, it does not mean that businesses automatically qualify for a loan and it does not mean that if the business fails the money doesn't have to be paid back.
The core intent of email loan promotions is to generate leads. They often have copywriting with limited transparency, personalisation and appropriate disclosures around risks. This develops an aura of "easy money" which can mislead recipients into applying for finance that may not suit their situation. Caution and further research is advised.