Small Loans Law

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 What Are Small Loans?

When an entrepreneur or prospective business owner seeks to start a business, that individual often seeks out small business loans in order to help them manage the business startup and operating expenses. It is important to note that taking out a small business loan may also be referred to as debt financing by those in the finance industry.

The reason behind a small business loan is because business owners and entrepreneurs cannot typically afford to self-fund their business from the business’ inception. As such, small business loans are becoming more popular and commonplace as more entrepreneurs and prospective business owners are seeking to start their own businesses instead of working for others.

It is important to note that business loans differ vastly from receiving financial assistance through individual investors. When financing a business through individual investors, which is commonly referred to as financing through equity investments, a prospective business owner makes no guarantee that they will fully repay the investors.

Instead, the investors purchase a portion of the business that they are investing in and take a risk on the business to succeed. Then, if the business does end up being a success, that investor will be repaid on their investment, oftentimes through profit sharing and dividends.

In addition to small business loans, there are also other forms of loans that fall under the umbrella of small loans.

Other examples of personal loans that are issued in smaller amounts to consumers include:

  • Small loans that offer an advance on an individual’s pay.
    • Payday loans, also known as “cash-advance” loans, are often for a small amount of money, generally $500 or less, that is lent to an individual under a high interest rate on the condition that both the money and the interest will be repaid out of the borrower’s next paycheck;
  • Small loans that provide finances for an emergency expense.
    • Emergency loans are issued by financial institutions for the purposes of covering an individual’s emergency expenses, such as an emergency medical or dental surgery;
  • Small loans issued for a vacation
    • Vacation loans are often offered by a company that offers vacations or retreats, but they may also be issued by an individual’s bank for purposes of a vacation or trip; and/or
  • Small loans issued for home improvement purposes.
    • Home improvement loans are sometimes considered to be a type of second mortgage, but are different from mortgage loans in that the loan amounts are smaller and used for labor and materials, rather than the ownership aspects of the home.

As can be seen, small loans can often be obtained in a short amount of time and may be subject to less rigorous approval steps than that of a larger more traditional loan. However, small loans are not always the ideal loans for consumers.

This is because many lenders take advantage of the demand for small loans and seek larger interest rates than that of a traditional loan. In response to the demand for small loans, many banks and other more reputable financial institutions have begun issuing more competitive small dollar loans for consumers.

What Are Some Characteristics of Small Loans?

Small loans are typically defined as a personal or unsecured loan that is made to a borrower for an amount that is generally less than $5,000. Unsecured means that the person seeking the loan doesn’t typically have to put up any assets as security for the loan, such as their home or vehicle.

The characteristics of small loans will be determined by the type of small loan that is being sought. As mentioned above, one of the most popular forms of small loans is small business loans. Once again, in response to the shift of individuals seeking to open and operate small businesses, the financial industry and reputable financial institutions have begun to offer competitive small business loans to prospective business owners.

One of the main advantages in utilizing small business loans instead of individual angel investors is that the prospective business owner gets to maintain complete control and ownership of the business. Small business loans often share similar characteristics to that of a traditional mortgage loan, with competitive rates and repayment options.

In general, small loans are short term loans because of how quickly the loans have to be repaid. Most small loans for personal or emergency expenses must typically be repaid within one year’s time, with payday advance loans being due in an even shorter time period.

What If I Have a Dispute over a Small Dollar Loan?

There are numerous legal disputes that may occur over a small dollar loan. Examples of common legal disputes that may occur over small dollar loans include, but are not limited to:

  • Loan Default: The borrower defaulting on their loan, i.e., failing to timely make the payments required, which may result in an acceleration clause being triggered.
    • An acceleration clause is a contract provision often contained in small loans that allows the lender to require the borrower to repay all of the outstanding loan at once if certain requirements are not met, such as timely payments;
  • Loan Fraud: Loan fraud may occur in one of two situations
    • When an individual falsifies their application for a loan resulting in the bank or other lending institution suffering monetary loss and setbacks in their business operation; or
    • Loan fraud against potential borrowers, such as a lender providing a fraudulent loan application to a potential borrower or engaging in predatory lending; and/or
  • Identity Theft: Loan applications often require a vast amount of an individual’s personal information, and many individuals seeking small loans for the payment of emergency expenses fall trap for fake lenders who are seeking to steal their personal information;

Legal disputes over a small loan can sometimes result in a damages award for the party that was defrauded. Additionally, engaging in fraudulent activities may also result in the responsible party being criminally charged. In many cases, damages related to small loans can accumulate to high amounts, especially if the violation causes loss of income, business losses, or other related damages.

In order to protect oneself against issues surrounding small loans, consumers are often advised to borrow from banks and other more reputable lending institutions as opposed to lesser-known lenders.

For instance, there are numerous lenders that utilize advertising and marketing tactics online in order to attract individuals that are in need of emergency money. In any case, a personal loan attorney that specializes in contract, business, and personal injury law will be able to assist an individual that has been harmed as a result of a small loan.

Do I Need a Lawyer for Help with a Small Loan?

As can be seen, small loans can be helpful, but they are also associated with a number of legal issues and disputes. As such, if you are seeking a small loan for business or personal purposes, it is in your best interests to consult with an experienced credit lawyer. This is especially true if you are seeking a small loan for a larger amount, or are having to put up security as collateral to secure the loan.

An experienced credit attorney can help research the laws in your area to determine what type of loans are most suitable for your current situation. Additionally, if a legal dispute arises which results in the necessity of a civil lawsuit being filed, an experienced credit lawyer can initiate the civil lawsuit and represent you in court, as needed.

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