Home Grass Roots Business • Financial Trade Body Small Business Lenders as Bad as Payday Loans

Financial Trade Body Small Business Lenders as Bad as Payday Loans

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Business Lender

Since the economic collapse, consumers have been complaining about how the payday loan industry has taken advantage of cash-strapped individuals. Critics often argue that payday loan businesses often force customers to enter into a never ending spiral of debt with exorbitant interest rates, excessive fees and constant renewal of loans. This, they say, is predatory.

Well, it’s not just consumers who may be facing that same challenge in the future. Small businesses could be on their way to embark upon that astronomical and tragic debt trap.

According to warnings from a financial trade body in the United Kingdom, small businesses lenders are trying to enter the marketplace. When startups are trying to look for funding and expand their operations, they become desperate for loans, and they can then turn to unscrupulous lenders. Without regulations, small businesses will lack the protections from these lending firms.

The National Association of Commercial Finance Brokers (NACFB) says that it has rejected 40 new lenders since 2014. These lenders have been attempting to place their nationwide sales team and brokers on the payroll of many small businesses when it comes to finances. They have previously succeeded in doing so because between 2011 and 2013, only five lenders were rejected.

So what is exactly wrong with these small business lenders? They maintain a similar business model as payday loan establishments they charge very high interest rates and exorbitant fees. The average rate new lenders are charging is about five percent per month.

These small business lenders have also been unwilling to show what their source of capital is, while shielding their track records, the NACFB notes. The organization did not name these firms.
NACFB CEO Adam Tyler explained that many new financial lenders are trying to take advantage of small businesses, particularly in today’s economy. Many small businesses are being turned down for funding from their financial institutions so they eventually become very desperate. Even in a low interest rate environment, banks aren’t taking risks.

“Small businesses are doing better because the economy is doing better,” he said. “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 added: “They are as bad as the payday lenders in consumer credit.”

The NACFB is concerned because consumers are pretty much protected today from businesses charging usurious rates and fees. However, limited companies are not, which means there would be no reparations or recourse if they are taken advantage of by these unscrupulous firms.

Right now, small businesses are being protected by various trade industry groups. For the most part, trade associations are forbidding these types of lenders from coming into the market. However, NACFB officials warn that small businesses have to check before they start to borrow from the lender just in case they make it through the cracks.

As the Financial Conduct Authority (FCA) continues to clamp down on payday loan stores, only time will tell to determine if the government regulatory body will crack down on small business lenders. If the NACFB is correct, new rules and regulations are urgent.

Author:Grass Roots

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