Business funding red flags to spot before you sign

Say your phone rings while you're loading the truck. The caller says your business has been pre-approved for $75,000, no questions asked. All you need to do is pay a small processing fee today.

That call is made up. But if your gut says something's off, listen to it. Business owners who need cash are a target for bad offers, and some of those offers sound reasonable right up until you read the contract.

This guide pulls together warning signs the Federal Trade Commission (FTC) has raised about small business financing. It isn't legal advice, and it can't tell you whether one specific offer is honest. It can help you ask better questions.

Why do business owners get targeted?

Because you're busy, because cash flow can get tight, and because business financing comes in a lot of shapes with a lot of different terms. The FTC's staff has noted that business borrowers can end up understanding newer financing products more like everyday consumers than like seasoned dealmakers. In other words, the fine print catches smart people too.

The FTC has warned that small businesses can be easy targets for bad actors, even though they matter so much to the economy. Knowing the common patterns is the best defense you've got.

"Guaranteed approval" and fees before you see a dime

Be cautious when anyone guarantees you'll be approved. No honest lender can promise approval before looking at your business, so a guarantee up front is worth a raised eyebrow.

Money up front is the next flag. The FTC's advice is blunt: don't pay in advance for a government loan, because you don't have to pay up front to get an SBA loan. The FTC also notes that the SBA won't call you out of the blue to ask you to apply for a loan, so a cold call like that isn't coming from them.

Then there's the sneakier version. In one case the FTC brought, the ads said "no upfront costs." But according to the complaint, the company took various fees out of the funding before the business ever saw it. Businesses got substantially less than the total amount promised, with gaps ranging from several hundred dollars to tens of thousands.

So "no upfront fees" isn't the whole story. Ask for the number that matters: after every fee, how much will land in your bank account?

"Special lender relationships" and 0% promises

In a case that settled in 2025, the FTC alleged a company advertised that it would use "special relationships" with lenders to get small business owners cash with no interest due for long stretches. The FTC said clients were charged thousands of dollars simply to open credit cards, often without the 0% interest terms they were promised, and that their credit scores were harmed. The company had also advertised "no upfront fees." The final order permanently bans it from marketing business financing, debt relief, or credit repair.

To be fair, real business credit cards sometimes carry introductory 0% rates. The red flag isn't a 0% offer. It's paying someone thousands of dollars to "arrange" one, and trusting a promise about terms that a card issuer decides.

Before you hand over a dime, ask these:

• Exactly which accounts would be opened in my name?
• Who is the actual lender or card issuer, and can I verify them on my own?
• What's the interest rate after any introductory period ends?
• What does each account do to my credit?
• What do I owe if I cancel?

Merchant cash advances: read this one twice

A merchant cash advance, or MCA, isn't a traditional loan. The FTC describes it as a company providing funds in exchange for a percentage of your business's revenue, often with daily withdrawals from your bank account until the obligation has been met.

Say you run a food truck, and a funder offers $20,000 repaid by taking a slice out of your sales every day. Sounds simple. But what happens in a slow week? Do the payments adjust, or do they keep coming?

That's a fair question, because FTC staff has flagged several concerns with some MCA providers: estimated APRs in the triple digits, a failure to do promised "true-ups" that reduce payments when daily sales drop, misleading promotion, and aggressive collection. The FTC's cases have focused on misleading claims and unfair collection practices. In one, the agency alleged that funders said no personal guarantee or collateral was required, then wrote those requirements into the contract. They also allegedly withdrew more from bank accounts than they'd stated, and made withdrawals without permission.

A gut check before you sign

You don't need a law degree to ask good questions. The FTC's advice is simple: read contracts carefully, understand what happens if you pay late or miss a payment, make sure what the company advertised matches what the contract says, and ask for written answers when something's unclear.

A good offer will still be a good offer tomorrow. If someone is pushing you to sign today, that's worth noticing. If you want a refresher on what a personal guarantee actually means for you, our guide to personal vs. business credit is a good place to start.

What does a legitimate path look like?

The SBA's main loan programs include 7(a) loans, 504 loans, and microloans of up to $50,000. They're delivered through partner lenders, and the SBA offers a Lender Match tool to connect you with them. Terms and eligibility vary, and approval is never guaranteed. But the process doesn't start with a stranger asking for cash.

You can also get your own house in order first. Business credit builds from real accounts and real payment history. Our guide on how to build business credit walks through the order that makes sense. And whatever offer you eventually consider, the same rule applies: get the answers in writing.

What if you've already paid or signed?

Don't panic, and don't pay more to try to fix it. Gather everything: the contract, emails, texts, receipts, and bank statements. Then report what happened to the FTC at ReportFraud.ftc.gov. You can also contact your state attorney general or state consumer protection office. If your contract includes a personal guarantee or a confession of judgment, it's worth talking to a lawyer in your state about your options.

Gold Star Credit is not a lender, and nothing here is a promise of approval, amounts, or rates. If you'd like to talk through where you stand and which questions to ask, you're welcome to book a free consultation.