Business Owners Warned About Rise of ‘Bandwagon Lenders’
The National Association of Commercial Finance Brokers (NACFB) has rejected 40 lenders for membership in the past two years
UK small businesses have been warned about the rising number of ‘bandwagon lenders’ and ‘flatpack’ finance providers entering the market in a report from the National Association of Commercial Finance Brokers (NACFB) published this week.
The NACFB has turned down 40 lenders for membership over the past two years, an eightfold increase on the five or so lenders it rejected two years previous to that.
The reasons for refused membership were varied with 60% of the rejections said to be due to the lender lacking sufficient experience of the principals of lending.
30% of these ‘bandwagon lenders’ were found to offer excessively high interest rates to small businesses while the NACFB rejected a further 10% due to offering a low quality product.
Adam Tyler, chief executive of the NACFB, said of its findings: “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.
“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.”