Financial mis-selling is surprisingly common. From mis-sold taxpayer-backed loans to problems with interest rate swaps, new cases appear in the public eye on an unsettlingly regular basis.
It’s impossible to predict when the next big scandal will emerge. Nobody saw the big PPI backlash coming until it was too late, and billions were owed in mis-selling compensation claims. But, as reliable as the tide, the next major case of financial misconduct looms.
While mis-sold finances are often reclaimable when discovered, in an ideal world, you’d want to avoid this happening to you. Nobody wants to deal with the stresses and strains of making a financial legal claim.
What Exactly Is Mis-Selling?
It is generally accepted that we’re not all experts in everything. You might be the head of a fresh new startup that provides innovative solutions to a new-age problem, but all that aptitude and intellect doesn’t mean you understand loan structures. So you may not know what kind of startup loan you need.
But the lender providing you with the money is expected to have this knowledge. It should know what you need.
The Financial Conduct Authority (FCA) regulates lenders, which must be authorised to trade in financial services to provide loans. To achieve authorisation, lenders enter into agreements to give accurate and honest financial advice to consumers, and not to take advantage of the customer’s lack of knowledge to sell them financial products they do not need.
Mis-selling happens when a lender breaks from the code of conduct and willfully advises you to agree to a financial service you don’t need. In the case of a loan request, the lender could:
- Agree to give you the money, while being fully aware it is more than you need and that the repayments will be too high for you to return.
- Offer you loan options loaded with excessive interest rates, additional fees you shouldn’t have to pay, or unnecessary clauses that don’t apply to your business or situation.
In these situations, the lender doesn’t provide you with the appropriate product. Instead, it sells you something you don’t know that you don’t want.
Why would a lender do this?
The simple answer is it generates more cash for the lender’s financial service business. You’ll end up paying more on your loan, or the lender will enter you into an agreement it knows you can’t realistically manage, driving up interest on repayments.
How to Avoid Being Mis-Sold Loans
There haven’t been any high profile cases of startup loan mis-selling recently, but that doesn’t mean it doesn’t happen. Plenty of examples go unreported in the media, while others may go by totally unnoticed.
Be Aware Mis-Selling Does Happen
As the recent payday loan issue taught us, even large and well-known public brands can be guilty of mis-selling to customers. Don’t let yourself get caught up in the idea that this won’t happen to you.
When possible, work with lenders you know and trust, or have good references for. However, even in these situations, keep your wits about you and your eyes out for warning signs.
Do Your Research
Research into financial management and lender procedures is going to be complex and sometimes difficult to follow. We’re not suggesting you become a startup loan expert. However, the more you know about how startup loans work, and what options are available, the easier it is for you to notice when things are out of place.
For example, if you’re aware of the basics for three different loan types that might suit your startup, and your lender tries to offer you the one that sounds the worst without mentioning the other options, you’ve quickly uncovered a big red flag.
Think about Your Options
Startup loans are often long-term investments. Even short-term loans are measured in months and years when it comes to startup businesses. These are significant decisions; we don’t have to tell you they’re not to be taken lightly.
Don’t jump on deals you’re not certain about. Instead, give yourself time to consider what’s available and crunch numbers to see how realistic the opportunity really is. Even if, in the moment, you’re sure about your startup loan choice, we still suggest this strategy.
Hindsight is 20/20.
Get Third-Party Financial Advice
The best advice we can give you is to get more advice.
When you have loan options from a lender, take them to a third-party financial advisor or legal expert for an educated opinion. You might not know if you’re getting the right startup loan deal or not, but these experts will.
Just be sure to go to an unbiased financial advisor with no links to your lender, as brokers and advisors have been known to cut deals in the past to secure commissions by providing inaccurate advice on already dishonestly offered loans.
What If You’ve Already Been Mis-Sold a Startup Loan?
Suspect you’ve been mis-sold a startup loan already? You don’t have to put up with it. You can make a complaint yourself to the FCA, before going to the Financial Ombudsman to investigate the situation.
However, be aware that this is time and resource-intensive.
Another option is to work with a claims management company. Through the use of claims management software, these companies can quickly automate and process your claim, which takes all the administrative stress off your shoulders.
It’s like letting an accountant do your financial reports and taxes instead of handling them yourself. Yes, you could make a compensation claim alone, but you might make mistakes, forget about deadlines, or fail to achieve the correct amount of compensation.
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