The 4 Important Disadvantages of Borrowing from a Loan Shark

If your business is suffering through lack of cashflow, or you want to expand quickly into a lucrative new market but you don’t have the funds, you quickly look for a source of finance. But if a bank turns you down for a loan, you don’t want to use your credit card, and you have no overdraft facility, what do you do? Many businesses and individuals turn to a so-called loan shark – an individual or company willing to lend money at short notice, with no checks or conditions. It seems like the ideal solution to a cashflow problem but wait – there are many dangers associated with this form of “easy” finance. And there are other ways to get your hands on cash for your business – read on to find out more about the key problems associated with borrowing from a loan shark.

1. Sky-High Interest Rates

You may be able to get quick cash but at what cost? Interest rates are normally much higher than you would expect from a bank or other lender, leading to high repayment amounts which compound your company’s financial problems over time, rather than solving them. Remember that these lenders understand how badly companies and individuals need a quick injection of cash – they prey on this and exploit it.


2. Illegal Links

When you go to an individual or a company offering quick cash you often have no idea if they are trading legally, or are offering a service that doesn’t have links to illegal activities. Stick to established, reputable lenders.

3. Complicated Payments Systems

Loans from loan sharks are often cloaked in confusing terms and harsh repayment plans. When you take out a loan or another form of finance from a reputable lender the terms and repayments are clear and transparent. You know exactly how much you will be paying each month, or when you will need to make a repayment. You can budget effectively and improve your financial situation.

4. No Reporting to Credit Authorities

When you take out credit responsibly you build up your credit score and history – when you take out a loan in this way it is usually not reported to credit authorities so you have no evidence of your activities.

Thankfully there are other ways to secure quick access to much-needed finance, without having to take out a bank loan. Alternative forms of lending exist such as invoice financing from a firm like, where you raise money from unpaid invoices, or a simple cash loan from an alternative lender, will help solve your cashflow problems in the short term, without giving you long term problems.

Image: Image courtesy of Stuart Miles /

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