The number of lenders rejected by the National Association of Commercial Finance Brokers over the past two years has skyrocketted. Trade body CEO advises SMEs to read the fine print when seeking finance
According to the National Association of Commercial Finance Brokers (NACFB), the growing number of bandwagon lenders and ‘flatpack’ finance providers flooding the market can pose a serious threat to small and growing businesses looking for growth finance.
Over the past two years, the NACFB says it has turned down 40 lenders for membership, an eightfold increase on the five or so lenders it rejected in the previous two years.
Close to two in three of the rejected lenders reportedly lacked experience of the principals, specifically those related to management and underwriting. 30 per cent issued excessively high interest rates to SMEs, and 10 per cent just fell short in the quality of their product offering.
“The success of many alternative finance providers and peer-to-peer lenders, coupled with the continued low interest rate environment, has resulted in a gold rush mentality,” Adam Tyler, chief executive of the NACFB, explained.
“We have a situation where a growing number of opportunistic lenders with little if any experience are jumping on the bandwagon and combining forces with investors who are desperate for higher returns.
“It’s relatively quick and easy for these ‘flatpack’ finance providers to set up but the principals typically have a poor industry knowledge, flimsy management processes and a payday loan-type mentality of charging excessive interest rates. In other words, they may look the part but in reality are very unstable.
“To make matters worse, the eagerness of the underlying investors to get their money out into the market working for them means underwriting is often of poor quality, too, which puts them at greater risk of defaults. This also puts viable borrowers at risk of having their own loans called in prematurely.”
The NACFB is urging SMEs to do their due diligence on all business lenders and finance providers before they approach them and, if necessary, to seek the advice of an independent broker experienced in arranging business finance.
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