An important note to all veteran small business owners across America: the repayment terms of small business loans can vary greatly and be written in very small print. Just ask Air Force Veteran, Mike Dunn.
A proud Budget Blinds franchisee, Mike was already seeing business take off in Temple and Killeen, Texas. In fact, due to increased customer demand, he needed a location to both display and store inventory. Like many small business owners, he suddenly had a working capital need. His new mission was to quickly build a new showroom.
Mike started his research as many small business owners do: online. He filled out a survey to match him with the right small business loan. The survey recommended OnDeck as an option for his small business loan, and Mike called them.
He reviewed the terms of the OnDeck loan carefully. Like most detail-oriented veterans, Mike wanted to ensure he maintained all protections for his scenario. When speaking with OnDeck, he specifically asked if he could pay the loan off early.
OnDeck's Prepayment Penalty Fees Reworded as a Discount
Mike stated that OnDeck assured him he could pay his loan off early but there would be a “25% prepayment discount.” Mike interpreted the “25% prepayment discount” thinking he would owe 25% of the loan’s remaining interest even if he paid it early. He admitted his interpretation was a mistake, but didn’t realize it until after he accepted the loan and OnDeck provided funding.
As many small business owners do, Mike soon realized the true cost of his loan was in the form of an Annual Percentage Rate (APR). Needless to say, Mike was looking for the “eject” button on the OnDeck loan and had already come across a much less costly option.
But that was where the fine print kicked in.
When Mike called OnDeck to obtain his payoff quote, OnDeck informed him that not only was his interpretation of the “prepayment discount” incorrect, the “25% prepayment discount” meant he actually owed 75% of the remaining interest regardless of how early he paid it off. He was stunned. This was definitely nothing like taking out a mortgage or car loan. Hidden fees and misleading language is certainly not against the U.S. law for small business loans.
For any military veteran, the concept of payday lenders camping outside the base gate is not a new one. But seeing small business loans like this from a well-known lender and being plugged by a Shark Tank shark feels… well a little like being attacked by a shark. Or being treated badly by those same payday lenders.
The end of story is that OnDeck did not budge despite Mike appealing to them. Being a veteran certainly did not sway them. In fact, according to Mike, OnDeck said that his next loan “would be completely different.” Mike agreed and said, “Yes, different. Because it will not be from OnDeck.”
Understand Your Business Loan Rates (and Fees)
Unfortunately, practices like the pre-payment discount game are very common and not illegal. How does one protect oneself? A good place to start is the Small Business Owner’s Bill of Rights. But that, itself, is not all encompassing. One must simply ask very detailed questions regarding pre-payment terms, balloon payments and extra fees. Click here to see a list of questions to ask before taking out a business loan. Always understand the apples-to-apples cost of a loan or APR. Download this resource to help you compare types of rates you may encounter from a lender.