Every week I talk to business owners who swear they “got a great deal,” and then two minutes later I see the actual offer and — surprise — it’s a dumpster fire wrapped in a PDF.
The small business funding world is loud, confusing, and full of people who are financially incentivized to get you into the highest-cost deal you’ll tolerate. Not the best deal. Not the right deal. The most expensive one you won’t walk away from.
So instead of letting you find out the hard way, here’s a blunt, no-nonsense guide to spotting predatory small business funding deals before they drain your cash flow, your time, or your entire business.
1. “You’ve been pre-approved for $200,000!”
Translation: They don’t know anything about you.**
Nobody pre-approves real money by text message.
If they haven’t seen your revenue, bank statements, industry, time in business, or credit profile, then the number they’re quoting means nothing. It’s lead-generation bait, not underwriting. The entire goal is to get you on the phone so they can start shaping a narrative around what they think they can sell you.
Real lenders underwrite based on actual financials, not fantasy projections.
2. “It’s just a soft credit pull.”
Translation: your credit still affects everything that matters.**
Brokers don’t usually say “we don’t check credit.” They say the friendlier version:
“It’s a soft pull — it won’t hurt your score.”
And that part is true. Most fintech lenders use soft pulls to prequalify you.
But the red flag isn’t that it’s a soft pull. It’s when someone acts like your credit doesn’t matter because it’s soft.
It very much does. Soft pull or not, lenders still price your deal based on credit quality.
Another issue: a soft pull is often the trigger for a broker to shotgun your file to a dozen funders at once. You won’t see it happening — but your inbox, voicemail, and spam folder will.
Soft pull ≠ soft pricing.
3. They focus on the amount, but gloss over what makes up the cost.
Most brokers will absolutely show you the total payback amount. They’re not hiding that number. What they don’t show you is the anatomy behind that number:
- how much of the payback reflects lender pricing
- how much represents their commission
- whether they added five or ten points on top
- what the price would look like if you went direct
The total payback isn’t the lie — it’s everything the broker didn’t itemize.
And you’re well within your rights to say:
“What’s your commission on this deal?”
There’s nothing impolite about that question.
They just don’t like being asked.
4. They push daily or weekly repayment — without explaining the alternatives.
Daily and weekly payments aren’t automatically predatory. In fact, they’re the default for most fintech lenders, revenue-based financing products, and merchant cash advances. These products were built for higher-risk borrowers and volatile revenue models, and faster repayment reduces lender exposure.
But brokers almost never talk about the context:
If you want monthly payments, you’re usually looking at:
- a bank loan, or
- an SBA loan
Both require:
- much stronger financials
- much better credit
- more documentation
- collateral, in some cases
- and the patience to get through a ~90-day underwriting process
Here’s the problem: brokers almost never shop SBA or bank options, even when you qualify, because the commissions are tiny. They default you into daily or weekly payment products because that’s where their income is.
Daily repayment isn’t the red flag.
Being steered into it without being told about monthly options is.
5. “Underwriting updated the offer.”
Translation: maybe… or maybe they’re just fishing.**
There are real underwriters in the fintech world, and sometimes terms do change based on deeper review. That’s normal.
What’s not normal is when the “updated terms” start shifting every time you ask a basic question — and the broker gets cagey about how or why the change happened.
The real red flag is this sentence:
“You can’t talk to underwriting directly.”
Sometimes that’s legitimate because underwriting teams don’t take calls.
But if the broker seems actively evasive about letting you verify anything, it usually means they’re:
- probing your appetite to see what you’ll accept, or
- shopping your file to different funders based on commission, not fit.
If someone keeps adjusting the deal like they’re tuning a radio, something’s off.
6. They can’t explain the total payback in plain English.
This one is simple: if someone can’t clearly explain what you’re repaying, what the cost represents, and how the calculation works, they don’t deserve the deal.
There’s no universe where a lender can’t tell you:
- the advance amount
- the total repayment
- the fee or factor
- the term
- the daily or weekly payment
- and your approximate effective APR
If the numbers feel slippery, incomplete, or vague, that’s intentional.
7. “We get paid by the lender — you pay nothing.”
Translation: you always pay.**
Yes, almost all lenders pay brokers.
That part is true.
What’s misleading is pretending this doesn’t affect you.
It absolutely does. The broker’s commission is baked into the total repayment. It’s not magic — it comes out of your pocket, just indirectly.
And then there are the side fees:
If you ever see charges like:
- “Personal Service Fee”
- “Consulting Fee”
- “Processing Fee”
- “Expedite Fee”
…that means the broker is double-dipping.
Most lenders hate when brokers add personal service fees because it siphons money away from the repayment stream and makes their loan riskier — but many tolerate it because they want deal flow.
If you’re supposed to send any money directly to a broker, walk away.
8. They pressure you into renewing before the loan is fully repaid.
Renewals aren’t automatically bad. Plenty of healthy businesses use them to smooth inventory cycles, support seasonal demand, or take advantage of real growth opportunities.
The issue isn’t renewals — it’s renewals without purpose.
Brokers love them because renewing resets their commission.
Whether it actually helps your business is a secondary concern.
If you legitimately need more capital, a better move is often to go direct to a competitor of your existing lender. Cutting out the broker typically yields better pricing, lower fees, and longer terms — because you’re eliminating the middleman’s incentive to keep you in the expensive lane.
Renew if it makes sense for your business model.
Not because a broker wants to hit quota.
How to Protect Yourself (Without Becoming a Full-Time Underwriter)
The easiest way to protect yourself is to slow down and ask the questions brokers hope you never bring up:
- Does borrowing even make sense right now?
- What is the total cost in dollars, not percentages?
- Can my cash flow realistically handle the repayment schedule?
- What’s the broker’s commission?
- Are there better direct-to-lender options?
- Am I being rushed or pressured?
This alone weeds out 90% of bad deals.
And if you want the simplest path to clarity — no commissions, no spam, no pressure — that’s why I built Diogenes.
He’ll tell you:
- whether you should borrow
- whether you’re a fit for SBA, bank, fintech, or none of the above
- what the real cost looks like
- when a broker is trying to fleece you
- and when the smartest move is to walk away
If you want the truth about funding — not the sales scripts — ask Diogenes before you sign anything.