Small businesses that have been turned down for finance elsewhere and are desperate for loans are at the mercy of dozens of untrustworthy new lenders charging as much as 5 per cent interest per month, and there are no rules in place to protect them from being swindled.
Financial trade body, the National Association of Commercial Finance Brokers (NACFB), has warned that it has rejected 40 new lenders who were seeking to access its nationwide salesforce of brokers advising small firms on finance over the past two years. Just five lenders were turned down over the previous two-year period.
NACFB said that the rejected small business lenders either charged sky-high interest rates, or were unwilling to reveal their source of capital, with some also failing to prove a track record.
The trade body has 1,600 brokers on its books, selling small business finance products from 142 lenders.
According to Adam Tyler, Chief executive of NACFB, many of these new lenders were looking to take advantage of small businesses that have been refused funding by high street lenders.
He said: “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.”
He revealed that some of the lenders were charging as much as 5 per cent interest per month, adding: “They are as bad as the payday lenders in consumer credit.”
Limited companies are not protected against companies charging exorbitant fees by consumer credit regulations, as individuals and sole traders are, so have no recourse if they are left out of pocket.
These claims are made following a series of scandals in the peer-to-peer industry. Most recently, Lending Club sacked its chief executive amid revelations that its loans are not necessarily all they are cracked up to be.
The NACFB was unwilling to name any of the lenders it rejected, “in case some of them get their act together and come back,” said Tyler. “But none of the trade associations, in my opinion, will let them in either, so small businesses should check before borrowing.”