How do I know if my business loan offer is predatory?

Warning signs include factor rates instead of APR, daily payments, confession of judgment clauses, terms shorter than 6 months, high-pressure sales tactics, blanket liens, and no clear cost disclosure. Multiple flags together suggest a predatory offer.

What is a confession of judgment and why is it dangerous?

A confession of judgment lets the lender win any lawsuit without going to court. They can seize bank accounts and assets without notice if you miss a payment. Banned in many states including CA, NY, and NJ. No legitimate lender needs this clause.

What is the difference between a factor rate and APR?

A factor rate (like 1.35) is a simple multiplier on the borrowed amount. A 1.35 factor on a 6-month advance equals roughly 70-85% APR. MCAs use factor rates because they seem lower than APR. Always convert to APR for accurate comparison.

Are daily payment business loans bad?

Daily payments strain cash flow because money leaves your account every business day. They are common with high-APR merchant cash advances. Monthly payments are standard for term loans and lines of credit. If daily payments are required, understand the effective APR first.

What should I do if I already signed a bad loan?

Review for illegal clauses (confession of judgment is banned in many states). Calculate the true APR for potential complaints. Look into refinancing to a better loan. Consult a business attorney if you find illegal terms. Report predatory lenders to your state attorney general.

Loan Offer Analyzer

Enter the key terms from a business loan or MCA offer and get an instant risk assessment. This tool checks for confession of judgment clauses, disguised factor rates, daily payment traps, excessive fees, and other predatory practices. You get a color-coded report card, detailed findings for each issue, true cost calculations, and a comparison to fair market rates.

100% FreeNo SignupInstant Results

Loan / Advance Terms

Enter the key terms from the offer you received. We do not store any of this information.

Loan or Advance Amount

How much you would receive

How is the cost expressed?

Factor Rate

Example: 1.35 means you repay $1.35 for every $1 borrowed

Repayment Term

Payment Frequency

Payment Amount (Optional)

Per payment, if stated on the offer

Understanding Predatory Business Lending

Unlike consumer loans, business loans have fewer regulations. This creates opportunities for predatory lenders to use confusing terms and dangerous contract clauses. Merchant cash advances, short-term online loans, and other alternative financing products can carry effective APRs of 50% to 200% while disguising the cost behind factor rates and daily payment structures. This tool helps you see through the marketing and understand what you are actually signing.

The Most Dangerous Loan Terms

A confession of judgment (or "cognovit note") means you agree in advance to let the lender win any lawsuit against you without going to court. If you miss a payment, they can seize your bank account and business assets without notice. These clauses are banned in many states including California, New York, and New Jersey, but still appear in loans issued from other states. Factor rates are another common trap: a 1.35 factor rate sounds low, but on a 6-month advance it equals roughly 70% to 85% APR. Use our factor rate to APR converter to check any factor-rate offer.

Red Flags When Shopping for Business Loans

Watch out for lenders who will not disclose APR (only factor rate or total payback), pressure you to sign immediately, do not ask about your ability to repay, found you through cold calls or spam, require upfront fees before approval, or guarantee approval regardless of credit. Legitimate lenders evaluate your financials, explain terms clearly, and give you time to review. When comparing offers, use our loan comparison tool to see total cost differences side by side. SBA loans typically run 6% to 10% APR, bank term loans 7% to 15%, and competitive online lenders 15% to 35%.

What to Do If You Already Signed

If you have already signed a predatory loan, start by reviewing the agreement for illegal clauses. Confession of judgment may be unenforceable in your state. Calculate the true APR, because misrepresented costs may give you grounds for a regulatory complaint. Look into refinancing to a lower-rate term loan or line of credit with monthly payments. If you find illegal terms, consult a business attorney. You can also report predatory lenders to your state attorney general. Talk to a funding specialist about refinancing options that could lower your cost, with no impact to your credit score.

How It Works

Enter the Offer Terms

Input the loan amount, cost structure (APR, factor rate, or fee), repayment term, and payment frequency from the offer you received.

Answer the Red Flag Checklist

Tell us about specific clauses: confession of judgment, personal guarantee, prepayment penalties, liens, and more. "Not Sure" is fine for any question.

Get Your Risk Assessment

See a color-coded report card with severity counts, detailed findings for each issue, true cost calculations, and a market rate comparison.

What You Get

Red Flag Detection

Checks for confession of judgment, high factor rates, daily payment traps, blanket liens, stacking restrictions, and other predatory terms.

Effective APR Calculation

Converts factor rates and fee structures into an estimated APR so you can see the true annual cost of the offer.

True Cost Breakdown

See exactly how much you receive, how much you repay, the total financing cost, and your per-payment amount.

Market Rate Comparison

Visual comparison of your offer against typical SBA, bank, and online lender rates so you can see where it falls.

Detailed Findings

Each issue gets a card explaining what was found, why it matters, and what you should do about it.

Risk-Based Recommendation

A clear verdict based on the severity and number of issues found, with next steps.

Loan Offer Analyzer: Frequently Asked Questions

Look for these warning signs: costs expressed as a "factor rate" instead of APR, daily payment withdrawals from your bank account, a confession of judgment clause that waives your legal rights, terms shorter than 6 months, pressure to sign immediately, blanket liens on all business assets, and no clear disclosure of total cost. Any single one of these is a concern. Multiple flags together suggest a predatory offer. This tool checks for all of them and explains why each matters. Use our factor rate to APR calculator to see the true annual cost of any factor-rate offer.

A confession of judgment (also called a "cognovit note") is a clause where you agree in advance to let the lender win any lawsuit against you without going to court. If you miss a payment, the lender can immediately seize your bank accounts and business assets without notifying you and without you having a chance to respond. These clauses are banned in many states including California, New York, and New Jersey. Even if legal in your state, it is a major red flag. No legitimate lender needs this protection. Walk away from any offer that includes one.

A factor rate (like 1.35) is a simple multiplier: borrow $50,000 and repay $67,500. It looks low, but the true annual cost depends on the term. A 1.35 factor on a 6-month advance works out to roughly 70% to 85% APR. Merchant cash advances use factor rates because they make costs seem lower than APR would. APR accounts for the time value of money and payment frequency, giving you the real annualized cost. Always convert factor rates to APR before comparing offers. Our factor rate converter does this calculation instantly.

Daily payments are not automatically bad, but they create two problems. First, they strain cash flow because money leaves your account every business day before you collect from customers. Second, daily payment structures are common with merchant cash advances that carry very high effective APRs. Monthly payments are standard for term loans and lines of credit. If an offer requires daily payments, make sure you understand the effective APR and total cost before signing. Use our cash flow forecast tool to see how daily withdrawals would affect your cash position.

First, review the agreement for illegal clauses. Confession of judgment is banned in many states, so that clause may be unenforceable. Calculate the true APR because you may have grounds for a regulatory complaint if costs were misrepresented. Look into refinancing to a better loan with lower rates and monthly payments. If you find illegal terms, consult a business attorney. You can also report predatory lenders to your state attorney general. Talk to a funding specialist about refinancing options that could lower your cost and switch you to monthly payments.

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