The National Association of Commercial Finance Brokers has warned SME's about the increasing number of opportunistic lenders and ‘flatpack’ finance providers coming to market.
Over the past two years, the NACFB has turned down 40 lenders for membership - 60% of which were rejected due to the lack of experience of their principals, specifically related to management and underwriting.
An additional 30% of those rejected related to the excessively high interest rates being offered to SMEs whilst the final 10% was due low quality product offerings and lack of knowledge of the broker market supporting SMEs.
Adam Tyler, NACFB chief executive, said: “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.
“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.”