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Confessions of an Entrepreneur: How a Passion for Work Defines One Healthcare App

Posted: 25 Jun 2019 12:00 PM PDT

With 15 years of experience in the medical industry, Jillian Bridgette Cohen wanted to build a wellness platform that would be available to clients anywhere and at any time.

That was the inspiration for Virtual Health Partners. Having created both a web and mobile app for the platform, Jillian understands the importance of technology as we go about our day-to-day lives.

Q: What devices do you use daily?

A: You would assume that a tech entrepreneur would list a variety of technology devices that are in daily rotation. However, Jillian keeps it simple, and a little surprising. "Other than my old-fashioned coffee maker, I,  of course, use my cell phone daily," said Cohen. said, "And I am obsessed with tracking my steps and MapMyRun."

Image courtesy of Jillian Cohen

Q: What technology do you use to get ahead of your competition?

A: Developing Virtual Health Partners meant keeping an eye on the future.

"Virtual Health Partners (VHP) is a technology company that offers a SaaS and PaaS solutions to support live virtual fitness, nutrition and lifestyle modification within a contained ecosphere of on-demand support," said Cohen. "VHP's platform is hosted on cloud-based servers to meet the growing needs of our business and provide reliable security in the ever-changing cyber universe."

Adopting a future-forward approach with doesn't end with planning for scale.

Jillian points to recent platform enhancements as an example. "We recently launched a platform update that uses artificial intelligence (AI) to push personalized content to users based on their needs, goals and preferences, streamlining their interactions for an improved user experience. The launch of AI also enables enhanced user engagement, more intuitive goal-setting and tracking, and advanced analytics. AI is a powerful tool, and we're working to harness this power in a way that can significantly improve the health and wellness of our users."

Q: Is technology a significant enabler for your business?

A: "Technology is the foundation of Virtual Health Partners' business model," said Cohen. "VHP's model allows for scalability of services and economic efficiency in a way that would not be possible in a traditional brick-and-mortar setting."

This makes technology a key element not just for the platform, but also for VHP's partners, which include insurance and fitness companies and hospital systems.

"This solution enables our partners to customize a live, virtual, nutrition, fitness, and lifestyle modification program for their clients with minimal start-up costs and continued overhead," she added.

Q: Has social media influenced your business at all, from internal employee policies to how you promote your company?

A: Jillian points to social media as a means of allowing her team to share their enthusiasm for what they do.

"As a health and wellness company, we have a team of nutrition, fitness, and lifestyle experts on staff who are incredibly passionate about what they do, and social media is a perfect platform for sharing their expertise with a broad audience," said Cohen. By sharing their excitement for their work, the team builds both the company's brand and trust with customers.

"People look for content by people and brands they know they can trust – we use social media as a part of our marketing efforts to strengthen brand awareness and position ourselves as a thought leader in the wellness space," she added.

Q: Have you had to adapt your business because of security concerns brought about by the increased use of technology?

A: Obviously, as part of the healthcare industry, VHP must place security as a priority.

"Security and privacy were part of the founding mission for the company and have remained as a critical part of what we do every day. The platform was built from the ground up to be HIPAA and privacy compliant," she said.

Their commitment to security goes beyond simple compliance, however. "The infrastructure and security measures that we have in place are rigorously tested and reviewed, and even include a companywide yearly HIPAA audit," said Cohen. "We utilize our passion for security and privacy as a feature that sets us apart from others."

Work Experience or Free Labor? Learn What Makes Unpaid Internships Legal

Posted: 25 Jun 2019 10:00 AM PDT

  • Unpaid internships are legal if the intern is the "primary beneficiary" of the arrangement. This is determined by the seven-point Primary Beneficiary Test.
  • If an employer is the primary beneficiary, the intern is considered an employee under the Fair Labor Standards Act and entitled to minimum wage.
  • Some states have requirements of unpaid internships, such as affiliation with academic institutions.

Under the Marxian view of capitalism, labor is a commodity that is bought and sold on the market. In exchange for the burden of that labor, workers get a salary, or wage. No need to cite Das Kapital – anyone who has ever had a job could tell you as much. So how could an unpaid internship possibly exist in a capitalist system?

For college students willing to pay any cost to launch their careers, it's a no-brainer. For them, interning is not selling their labor for zero wages; it's buying work experience for the price of their labor. Despite the Fair Labor Standards Act, this can be legal. Such is the value of a well-padded resume.

One of the companies taking advantage of this demand is CBD'R US, an online cannabinoid product retailer based out of Anaheim, California, which began hiring unpaid interns two years ago.  

"We've found interning marketing majors has become beneficial for both us and the interns," said Keeon Yazdani, chief marketing officer at CBD'R US. "We provide interns the opportunity to learn about how a small business operates, while they provide their insight on social media and how to keep the younger demographic engaged with our content."

Kristi Porter, the Georgia-based solopreneur behind the copywriting consultancy Signify, also found her unpaid internship program to be an overall positive experience.

"I only require five hours per week, so that's why it is unpaid," Porter said. "All of them have been good with our arrangement and, I believe, have had a great time and learned a lot. As a one-woman business, it's also great to sometimes get others' opinions and insight."

Neither Signify nor CBD'R US awards academic or vocational credit through their internships.

"Though I have offered class credit in the past, no one has taken me up on it," Porter said. "They seem to want the experience more than anything else."

With college students lining up to work for free, it can be easy for small businesses to forget to do their legal due diligence. Many well-intentioned bosses may be surprised to learn that their off-the-books internship is breaking labor laws.

Are unpaid internships legal?

Under the Fair Labor Standards Act of 1938, any employee of a for-profit company must be paid for their work. However, interns are not considered employees under the FLSA.

Does that mean unpaid internships are legal? The short answer is yes, as long as the intern, not the employer, is the "primary beneficiary" of the work arrangement. What makes the question so difficult is its subjectivity – interns and employers may have differing views on who benefits most from the arrangement. Couple this with the fact that many states have their own regulations, and the costs for employers can often outweigh the benefits.

Primary Beneficiary Test

It's a safe assumption that all unpaid internships are mutually beneficial to some extent – or the transaction would never have occurred in the first place. However, an intern's willingness to work unpaid does not alone make it legal. Citing "mutual benefits" wouldn't cut it in a court of law either – what matters is who benefits more. The answer may depend on which party you ask.

The Department of Labor addresses this subjective question with the flexible seven-part Primary Beneficiary Test, updated from the more rigid six-point test in 2018. Note that the test is for for-profit organizations only. For public sector and nonprofit organizations, the rules do not apply – indeed, both Congress and the White House have been known to employ unpaid interns.

According to the test, an intern is a primary beneficiary by the extent to which …

  1. The intern is aware that they will be uncompensated.
  2. Training is comparable to training received at an educational institution.
  3. The internship is tied to the intern's current educational program (e.g., with academic credit).
  4. The internship accommodates that intern's academic calendar.
  5. The internship is limited to the period during which the intern receives beneficial learning.
  6. The intern's work complements (not replaces) existing employees' work, while still providing beneficial learning.
  7. It is understood that the internship does not provide entitlement to a job at its conclusion.

If an analysis of these seven points leads to the conclusion that the employer is the primary beneficiary, then the intern is an employee entitled to minimum wage. The tricky part is that no single factor is determinative, making the test more like a set of guidelines than a list of rules. Without any clear lines drawn in the sand, one could see why many employers and interns are left scratching their heads.

Brandon Ruiz, whose Los Angeles law firm Hennig, Ruiz & Singh represents employees in wage disputes, reminds employers that labels mean nothing. "If the intern performs work that benefits the employer and that would otherwise be performed by a regular employee, it is unlikely to be an internship. If the intern performs work that primarily benefits the intern and does not do work that would otherwise be performed by an employee, it is more likely to be an internship."

In other words, simply changing an assistant's title to "intern" does not waive their right to compensation.

"Interns are not a way to get free labor," said Ruiz.

This extends to international students without authorization to work in the United States. While such students are only allowed unpaid internships, they must still pass the Primary Beneficiary Test – an inability to accept compensation does not provide a legal loophole. What's more, if the Department of Labor finds the internship to be in violation of the FLSA, that intern would be violating their immigration status. In such cases, the employer is not the only one punished; the intern may be at risk of deportation.

State legislation on unpaid internships

Employers undeterred by the Primary Beneficiary Test will also have to check with their state before hiring any interns. Where the federal government fails to set any strict requirements, many state governments pick up the slack. Some make the flexible guidelines of the seven-point test mandatory, with many providing criteria of their own.

New York, for example, includes that internships must provide transferable (rather than company-specific) training and cannot be of any "immediate advantage" to the employer – even when the intern is the primary beneficiary.

In fact, as outlined by the New York State Department of Labor, "in most circumstances, interns will require employers to dedicate resources that may actually detract from the productivity of the worksite for some period," making it virtually impossible for a company to profit from an unpaid internship.

In the case of CBD'R US, the lack of academic affiliation in its internships could be problematic. The state of California has one of the strictest stances on unpaid internships, requiring all programs to be conducted through and supervised by an accredited school or vocational program. Employers must also submit an internship proposal to the Division of Labor Standards Enforcement before hiring. Any internship that does not meet these standards must pay minimum wage.  

Pros and cons of hiring unpaid interns

Legal hurdles

Those still keen on hiring interns should contact their nearest Department of Labor Wage and Hour Division agency to determine whether the FLSA applies. However, be prepared for the answer to almost always be yes.

Even legal unpaid internships tread a fine line of compliance, where failure is costly. While some large companies can game the system, factoring legal fees into the cost of labor – paying an out-of-court settlement to one intern is still cheaper than paying 25 interns' wages – small businesses do not have such luxuries.

"It is generally cheaper in the long run to ensure that any internship is legally compliant before hiring an intern," Ruiz said.

Small business owners should also err on the side of caution. While not required in every state, the following suggestions may be helpful in preventing disputes:

  • Put all understandings about compensation and commitment in writing. Everything should be signed by both the intern and their supervisor.
  • Keep a log of hours and overtime.
  • Offer college credit, when possible.
  • Stick to general, transferable training – do not assign grunt work.

You get what you pay for

Some employers find the quality of talent in a paid intern outweigh the cost-effectiveness of an unpaid intern. This was the case for The Hire Talent, a company that provides pre-employment assessment to recruiters, when analyzing its own recruiting methods. The Hire Talent currently pays interns $15 an hour.

"This makes us more competitive for the best talent," said CEO Fletcher Wimbush. "For us, it's a very inexpensive way to get tasks our higher-paid people would prefer not to do or test out new ideas."

Divorce attorney Russell D. Knight found the same to be true when hiring interns for his Chicago family law firm.

"The quality of work is always higher if you're paying someone even a nominal amount," Knight said. "If the intern isn't generating value greater than twice the minimum wage, do you really even want them there?"

Unpaid internships and economic inequality

Before you start jumping through the legal hoops of employing an unpaid intern, it may be worthwhile to consider the moral issue as well.

It's hard to see any harm done in an unpaid internship – they're free to leave, after all. According to the Economic Policy Institute, however, unpaid internships can be of great detriment to social mobility. Its report shows how the unpaid intern is not the only stakeholder; students who cannot afford to work for free are also affected. For such students, the price of an unpaid internship is not just time, but the opportunity cost of the wages they could be earning in another part-time or full-time role. Upon graduation, when these students are outcompeted by those who had the support for an unpaid internship, their disadvantage becomes even greater.

In short, unpaid internships create a vicious circle: They reward students who are already economically advantaged while ramping up the competition for everyone else.

That's not to say that your small business's internship program is single-handedly responsible for the U.S.'s rise in income inequality. Still, it's important to keep in mind that your intern's wellbeing is not the only moral issue at stake.

Bottom line

Legal unpaid internships are rarely profitable, and profitable unpaid internships are rarely legal. Meanwhile, the rare cases in the center of the Venn diagram may still provoke moral quandaries: While you may not have to pay wages, costs will be incurred elsewhere.

Just as there's no such thing as a free lunch, there's no such thing as a free intern to fetch you that lunch.

How to Protect Your Data From Unsecured Apps

Posted: 25 Jun 2019 06:00 AM PDT

  • Protecting your data can be as easy as keeping your apps updated and updating existing app permissions.
  • Create strong, unique passwords and, when available, use two-factor authentication.
  • Public Wi-Fi is convenient but can be a hotbed for potential intrusions. Avoid it or use a VPN service to keep your data safe.

In little more than a decade, smartphones have gone from expensive replacements for flip phones to multifunctional devices that we take everywhere and check dozens of times each day. With its ability to help with work-related tasks, find a date or whittle away our day in bite-sized chunks, the smartphone is a ubiquitous tool in our digital lives – thanks in large part to apps.

The apps we download are what make our phones unique to us. We entrust our data to these apps in exchange for their use. But what happens when that trust is violated? In recent years, major apps have been the center of massive intrusions from hackers and data breaches that have left our private data exposed.

To help you keep your private data safe, we spoke with security experts about the steps you can take to make sure the information on your phone data isn't vulnerable – whether you're connected to your small business's network or just watching cat videos.

1. Keep apps updated.

The easiest thing you can do to protect your smartphone from intrusion is to make sure that the application you're using is the latest version. Nearly every phone on the market has the ability to constantly check that installed apps are up to date.

While it's easy to just set up your phone to automatically update apps, sometimes you need to grant it permission to download an update. This usually happens when the download is particularly large or the app needs special permissions to access parts of your phone.

Andrew Reshetniak, a staff security intelligence engineer at Lookout, said keeping applications up to date becomes especially important as developers find vulnerabilities.

"App developers try to address identified vulnerabilities as soon as possible," he said. "It is a good idea to get the fixed version of the app before corresponding vulnerability exploits become widely available."

Similarly, you should always download and install updates to the phone's operating system. Not doing so could leave discovered vulnerabilities wide open at the system level.

2. Only install apps from official sources.

In addition to keeping apps updated, it's important to only download apps from official sources. Whether you have an Android, Apple or some other kind of mobile device, each has an official app store that requires certain safeguards before an app can be sold on its storefront.

While nearly all phones can let you download and install applications from third-party locations (after you change a few security settings), cybersecurity experts emphatically warn against doing so.

"Applications from unofficial sources do not undergo the verification procedure, and therefore, the chances are much higher than you will encounter malware that can attack programs on the device," said Leigh-Anne Galloway, a cybersecurity resilience lead at Positive Technologies.

Downloading from the App Store or Google Play Store may be a safe bet most of the time, but Galloway also cautions against getting complacent, as malicious apps can sometimes slip through the cracks. One way to counter that issue, she said, is to pay attention to who made the app in the first place.

"If the developer has created other apps with suspicious names, such as Wi-Fi Booster, Easy Root or Funny Videos, then it might not be a trustworthy one," she said. "You can also check reviews online of the application before installation. If you see the app was mentioned as suspicious by even one user, don't install it."

3. Pay attention when granting permissions.

When downloading an app, it's likely you've just accepted any and all permissions it requested so you could get it running as soon as possible. Like the end-user agreements that we're all guilty of paging through without reading, app permissions are very important but largely ignored.

Experts say blindly accepting app permissions can leave you extra vulnerable, as apps can gain access to your device's camera, microphone, contact list or other sensitive areas of your phone.

"Apps have previously been discovered that ask for permissions they don't really need," said Ray Walsh, digital privacy expert at ProPrivacy. "If a [flashlight] app, for example, asks for permission to access your contacts and microphone, it is easy to see why this app might be doing something untoward."

While you're likely to have lackadaisically granted permissions in the past, the good news is you can go back and fix your mistakes. Depending on the version of Android your device uses, it can be as simple as finding the application manager and changing the privacy settings. Likewise, Apple users can go into the device's settings, tap Privacy and make changes to any previously granted permissions.

4. Practice good password hygiene.

Since most services require you to log in before using them, it's imperative that your passwords are secure. There are many ways to create stronger passwords. Take this step seriously, since more than 80% of breaches can be traced to poor passwords.

One simple way to make sure you're secure is to download and use a trusted password management app. These often come with tools to generate unique, high-strength passwords. The benefit to using a password manager like LastPass or 1Password is that they also remember those passwords for you, so the long, jumbled alphabet soup that is your new Google password can be easily stored, recalled and used.

You should avoid using the same password for everything you do on the internet. That way, if one service is compromised, the rest of your services are still safe. It is also a good practice to change your passwords regularly.

Two-factor identification is a great way to ensure your accounts are secure. Rather than relying on a single password to verify that you're the right user, some apps ask you to enter a passcode that was either emailed or texted to you, while others will have an automated service call to confirm your identity. If your phone allows for it, fingerprint scanners can also be a form of identification. The more hurdles between your data and a digital attacker, the better.

5. Be careful when using public Wi-Fi.

Free public Wi-Fi can be convenient to have access to when you need it, but you should know the risks going in. Since the Wi-Fi network is open to everybody, there's no secure way of using the service. With zero encryption, anyone with a Wi-Fi-enabled device can see what everyone is doing.

According to Keeper Security co-founder and CEO Darren Guccione, a public Wi-Fi network can pose major problems for the average user.

"Open access points can be easily impersonated – there is no authentication mechanism to ensure that you're truly connecting to an airport or coffee shop access point," he said. "You could be connecting to a hacker's laptop or mobile device that is impersonating the access point, which gives them full access to all of your network traffic, opening you to man-in-the-middle attacks, which can allow the hacker to steal data and passwords."

One way to counter this is to use a VPN, or virtual private network. While VPN services charge a monthly fee, they work by obfuscating your traffic on the web. As a result, to someone monitoring traffic on a public Wi-Fi hotspot, what would normally show up as readable data would show up as encrypted data.

Ultimately, the best way to keep your sensitive data secure from public Wi-Fi is to not connect to the service at all.

6. Train employees on BYOD best practices.

As businesses continue to adapt to a constantly changing tech landscape, many are changing to a "bring your own device" model. In past years, companies had IT departments that heavily monitored and restricted what devices were allowed on their servers. To cut costs and boost productivity, however, companies of all sizes have started letting employees bring their own laptops and other Apple and Android devices from home.

Eric Williams, founder and CEO of Ijura, said employees' devices then become the weakest link in a company's security chain, leaving sensitive business data at risk.

"You could try preventing any non-company-owned device from accessing your network. But let's face it – that's not practical, especially for a small, growing business," he said. "The reality is, you and your employees are going to access sensitive business content on the same device from which you are checking Facebook and emailing friends. Personal apps can be a serious exposure point, as many hackers use legitimate apps to create trust with users whilst getting them to pass over sensitive information or download malicious content."

To combat that problem, Williams said businesses should have quarterly training sessions on online security best practices. During those sessions, employers should teach workers how to "recognize phishing emails and set fake traps for them as practice."

Rather than just teaching your employees about online security, Williams said, companies should consider implementing a "cloud-based mobile threat solution integrated with your company's mobile telecommunications operator. You can more easily protect all employee devices and data, including apps and email, while still respecting employee privacy. This software can recognize and reject suspicious apps, links, messages and sites so you won't even have the option to click."

Do You Understand the Fine Print of Your Loan Agreement?

Posted: 25 Jun 2019 06:00 AM PDT

For thousands of New York taxi drivers, however, both ended up being the case. According to a New York Times expose published this spring, much of the profession's financial ruin – and, tragically, rampant suicide rates – can be traced to the deliberate overpricing of taxi medallions (the city's taxi license) and the predatory loans cabbies took out to afford them. 

There's little argument that the taxi drivers weren't taken advantage of, with many lacking the English language skills to do their due diligence. The problem is that not all predatory loans are unlawful loans. While usury laws can cap interest rates and payday loans are outright banned in some states, many unethical lenders are still able to operate within the realm of legality.

Editor's note: Looking for a small business loan? Fill out the questionnaire below to have our vendor partners contact you about your needs.

Check yourself before you wreck yourself

Failing to read the fine print of a loan agreement can have life-altering consequences. If you're a small business owner who has been approved for a business loan, the hard part may be over, but don't let your jubilance get the best of you. Read the fine print.

You'll know you've been thorough if you can answer these seven questions:

1. Is the interest rate fixed or variable?

In a variable interest rate loan, the borrower pays the market's interest rate plus or minus a fixed percentage. A variable rate commonly seen in business loans is the Wall Street Journal Prime Rate plus 2.5%. As the prime rate changes, so does the interest a borrower pays.

A fixed interest rate, however, is not affected by the market – the percentage remains the same. Variable rates tend to accrue less interest than fixed rates, however, this comes with greater risk, especially for loans with long amortization periods. A fixed interest rate secured when interest rates are low can shield borrowers from market changes.

Look out for interest-only loans. In a standard amortizing loan, borrowers pay off a bit of their principal, or the amount initially borrowed, in addition to interest for each installment. An interest-only loan, on the other hand, is exactly what it sounds like – but it doesn't last forever. After the interest-only period, borrowers can either convert to a standard amortizing loan, pay off the whole debt in one balloon payment or refinance. [Interested in finding the right business loan for your small business? Check out our best picks and reviews.]

The advantage of interest-only loans, for those willing to take the risk, is that the initial required payments are lower – this can be a lifesaver for a cash-strapped small business. As with any other risky lending practice, however, they can also be used by predatory lenders to mislead inexperienced borrowers. Indeed, this was one of the many schemes The New York Times reported were used against taxi drivers, by leading borrowers to think they were slowly paying off their debts when they were only paying interest.  

2. What is the annual percentage yield?

The annual percentage rate (APR), a combination of the total interest payable and all other fees averaged out over the term of the loan, provides a useful way to evaluate and compare loans with one quick figure. What APRs don't factor for, however, is compounding interest, which is why borrowers should look at the annual percentage yield (APY), or earned annual rate (EAR), for a more accurate read on what they'll have to pay. This is because unlike APR, which multiplies the interest rate by the number of times it's applied (e.g., quarterly or monthly), the APY includes compound interest, or interest paid on previous interest.

Since APYs are higher – not to mention much harder to conceptualize – they're less likely to be quoted by lenders. If that's the case, borrowers can use this online calculator instead.  

Look out for factor rates. It's common for short-term loans or merchant cash advances to quote interest in the form of a factor rate – this is not to be confused with APR. While APR reflects interest charged on the remaining principal – meaning the more debt you chip away, the less interest you'll owe – factor rates reflect interest for the entire principal, regardless of the number of installments or how quickly it's paid off. Thus, a factor rate will accrue more interest than an APR of the same percentage.   

That's something Glenn Read learned the hard way when financing his small business, Allegra Marketing Print Mail, after being turned down for a traditional bank loan.

"I was forced to take out merchant cash advances (MCAs) and high-interest line of credit loans just to meet payroll and keep the lights on," said Read. "One of the first MCAs I took out, the amount I was given was $40,000 and the payback was $56,000 for a one-year term." As it happened, the merchant cash advance had charged a factor rate of 40%.

3.  Whose credit rating is important?

"It's important to understand the language of the nonbank lenders," said Read. Whose credit rating is it based on?

A business loan is often based on a combination of both business and personal credit scores. For small businesses yet to prove creditworthiness, the owner's personal credit score is especially critical.

"Few small businesses have a long enough track record to have a sufficient credit history," said Brian Cairns, who runs his own consulting company ProStrategix Consulting Inc.  After securing his own small business loan, Cairns now helps many of his clients do the same.

According to Cairns, personal credit concerns not just the founder, but any equity-holding partner. "If you or one of your partners owns a material part of the business (usually about 20% or more), your personal credit can affect your chances of getting a small business loan," Cairns said.

Look out for unjustified risk-based pricing. A subprime loan, or a loan given to a borrower with a poor credit history, will often pay a risk premium of either higher interest rates, higher fees or both. Some predatory lenders take advantage of this reality by telling the borrower they have bad credit to ramp up interest rates, a practice known as unjustified risk-based pricing. This is an easy trap for inexperienced borrowers unaware of their own creditworthiness. Thus, an awareness of your personal and business credit rating can help you make sure you're getting a fair price.

4. Do you have to put up collateral?

A secured loan means that the borrower must offer some sort of asset as collateral, or something that can be taken over by the lender in case of default. In mortgages, this is the property itself. An unsecured loan does not include any collateral.

While credit cards and student loans are common examples of unsecured loans, business loans will almost always require some sort of guarantee. Only well-established companies with long credit histories will stand a chance of getting an unsecured business loan.

Look out for personal guarantees. It's common for small business loans to include a personal guarantee for the same reason personal credit scores come into play – many small businesses have yet to build creditworthiness on their own, making the owner liable instead. On top of that, small businesses may be lacking in assets that can be used as collateral. However, banks may not always be upfront about this.

"Most people don't read the fine print and can be surprised when they learn that they put some of their personal finances at risk," Cairns said.

The assertion comes from personal experience. "We caught it in our fine print that the bank was using our founders' personal retirement savings as a personal guarantee for the loan."  

5. What is the payment and amortization schedule?

Interest rates and APR aside, business loans can also vary by payment schedule. This includes not just the number of payment periods per year, but the inclusion of grace periods, late payment fees and prepayment penalties.

One thing lenders don't often explicitly specify in the fine print is the amortization schedule, or the schedule of how much of the debt is repaid each month. Remember that in each installment, some of the money a borrower is charged pays off the principal, or the amount of money they were initially lent, and some of it is paying off the interest, which can be seen as a fee for the lender's services. As a loan reaches maturity, the proportion of each installment paid toward principal increases while the proportion paid toward interest decreases.

The difference between an amortization schedule and a payment schedule is that with the latter, the amount of principal and interest owed each installment is added together into one total amount charged. An amortization schedule, meanwhile, lets borrowers see the exact breakdown, showing how much debt they still hold at any given time during the life of the loan.

It's important for borrowers to know where they stand with their debts, as these can affect their credit rating. A savvy borrower can also use the amortization rate to calculate how much they'd save in interest by paying off their loan early. Thus, borrowers are advised to plug their loan details into an online amortization calculator.

Look out for prepayment penalties. Getting penalized for paying a loan off early may sound counterintuitive, but the earlier the borrower repays the principal, the less interest they'll have to pay over the life of the loan if it's a standard amortizing loan. Since lenders rely on that interest to make a profit, charging a prepayment penalty can offset some of that lost future interest. The good news is that while common for mortgages, prepayment penalties are rarely included in small business loans.

6. What is the lender's definition of default on payments?

Some borrowers will hang on to the fine print word for word, only to give a cursory glance to the part about defaulting – no one wants to entertain that possibility. What they don't know is that some lenders may have strict interpretations of what it means to default, creating expensive mistakes down the line. This is why Jared Weitz, founder and CEO of small business lender United Capital Source Inc, stresses the importance of doing your homework.

"One piece of language and content to look out for is the time period allowed to make amends after receiving a default notice," said Weitz. "If you read this prior to signing and default your loan, you will already know what to do and how quickly it must be done."

There are some instances in which a borrower can pay on time and still go into technical default. This is a result of violating other terms of the loan, such as failing to provide tax returns or taking on additional debt.

Look out for Confessions of Judgment. A Confession of Judgment (COJ), or cognovit vote, is a written agreement signed by the borrower that forfeits their rights to dispute any actions taken by the lender upon default. This means that if a borrower defaults, the lender can present the COJ in court and obtain a judgment without the borrower ever being notified, let alone given the opportunity to defend themselves.

"These days, it seems the No. 1 predatory lending scheme that SMBs are prone to is the use and misuse of Confessions of Judgement," said Weitz.

According to Weitz, such predatory lenders profit by enforcing the COJ as soon as the business owner defaults before owners are even given the chance to cure the default in the time specified in the loan agreement. "These predatory lenders go into the financing agreement with the intention of default so that they can seize the business and personal assets of the business owner."

Luckily, COJs are not a necessary evil. "There are many lenders out there that will work with you without the use of a COJ, so when shopping around make sure you mention that you will not agree to any terms that involve a COJ," said Weitz.

7. How does the lender make money?

The best thing small business owners can do to get a fair loan agreement is to ascertain where the lender's profits are coming from.

A fair lender should be turning most of their profit from interest rates reasonably based on the borrower's credit history. Look out for lenders raking in profit from penalties or seized collateral, however. If the lender earns more money that way than from interest, then they'll be incentivized to reverse engineer loan agreements to force borrowers into default. Indeed, this is exactly how many predatory lending schemes are conceived – which is why no borrower should enter a contract in which the lender profits from their failure.  

It's unlikely that your lender is going to let you read their income statement, but such loans are usually made obvious by the too-good-to-be-true interest rates, excessive fees and lack of any grace period. You can also look up your lender's rating on the Better Business Bureau.

Bottom line

The takeaway is not that some loan terms are bad and should never sign the agreement. The takeaway is that you should never sign a loan agreement until you understand every term in the fine print. Do not hesitate to consult a lawyer if that's what it takes.

Many of the same terms used in predatory lending schemes are also effective financing tools for borrowers willing to take a bit of risk, as long as they know what they're signing onto. By that same token, lenders deemed safe may still include unexpected terms and conditions that end up ruining borrowers who didn't do their due diligence. In conclusion, read the fine print!
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