The process of avoiding malpractice for small business financing has simultaneously become more important and difficult. The time, cost and effort required to accomplish this will be easily justified because of the potentially devastating costs of ignoring the issue. Business funding malpractice is a concern when there is a serious failure of professional duty. Malpractice can occur with both lenders and brokers for commercial mortgages and commercial loans when commercial borrowers are seeking business loans.
Dealing with an inexperienced advisor is one of the biggest recent causes of malpractice involving working capital loan transactions. Most commercial borrowers are probably aware that chaotic conditions started impacting residential real estate a number of months ago. Because numerous former residential lenders and brokers are now attempting to execute business loans after previous residential lending activities decreased, this has produced problems for commercial borrowers.
When choosing a commercial broker or lender to work with, inexperience involving small business loans should be avoided whenever possible. The routine complexity of small business loans combined with inexperience is likely to result in a receipe for malpractice.
Commercial borrowers should not assume that a lender or broker will be even marginally capable of properly executing commercial mortgage loans, even if they did a superb job with residential financing. There are many significant differences between small business financing and residential financing. It usually requires years of effort to master the intricacies of commercial loans.
Another common source of malpractice with working capital financing is currently seen with many agents for business cash advance programs. Most of these agents represent only providers for credit card receivables financing and simply do not understand business loans in general. These advisors are frequently incapable of assisting with other forms of small business financing because they are usually focused on only the narrow but important service that they provide.
Although it might not be obvious to most business owners, the malpractice potential with merchant cash advances is also directly related to the first example described above involving inexperienced brokers and lenders. In many cases call centers that previously focused on residential real estate loans have simply switched their focus to merchant financing programs. Once again inexperience is never a good thing when complicated working capital management services are involved.
When assessing potential obstacles for working capital loans and business loans, the malpractice examples described above are just the tip of the iceberg in most cases. The importance and value of being prudent in pursuing small business financing should be reinforced by this precautionary alert.