Small Businesses in Need of a Loan Could Be at Risk

Posted on 31 May, 2016 by Steph Cowie

Small businesses looking for a loan could find themselves using unscrupulous new lenders that have huge interest rates, resulting in difficult repayments and the remainder of the loan becoming a difficult task.

Small Business Loans

In the last two years, 40 new lenders that were looking to access its nationwide salesforce of brokers advising SME’s on finance, were rejected by a financial trade body. However, over the previous two-year period, only five lenders were prohibited.

According to the National Association of Commercial Finance Brokers (NACFB), some of the disallowed small business lenders were either looking to charge sky high interest rates or were unwilling to reveal their source of capital. Lenders that failed to show a proven track record were eradicated.

At present, the trade body has 1,600 brokers on its books which sells small business finance products from 142 lenders.

Many of the new players were seeking to take advantage of small businesses turned down for funding by high street lenders, says Adam Tyler Chief Executive of the NACFB.

Adam goes on to say: “Small businesses are doing better because the economy is doing better.

“They are getting more orders and employing more staff and if the banks won’t help them, they’ve got to get the money from somewhere.”

When looking at new lenders, some were charging 5pc interest each month, making them as bad as the payday lenders in consumer credit, continues Adam.

Limited companies are not protected against lenders charging extortionate fees by consumer credit regulations, resulting in them being left out of pocket.

In the recent wake of financial scandals in the peer to peer industry, Lending Club sacked its Chief executive amid fears that its loans may not have been the best quality for its consumers.

The NACFB did not name any of the rejected lenders as they could potential re-apply when they have revaluated their position.

Mr Tyler concludes: “But none of the trade associations, in my opinion, will let them in either, so small businesses should check before borrowing.”

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