Short-term Gain For Long-term Pain
ANZ CEO Shayne Elliott recently made comment on an article in that he had very little faith in some of the 2nd tier commercial funder credit currently operating in today’s online finance environment.
Dare I say it, I have to agree. The concern around these types of lenders should be expanded to the multiple new groups that have popped up in the 3rd party channel. Make no mistake it’s an incredibly difficult time for small businesses at the moment, with expenses either increasing or remaining the same while revenue has been destroyed. Desperate proprietors are using whatever means are available to stay afloat even if it means taking short term loans with little or no hope of paying out within the required time.
Here is where things get interesting. In a past life, I was asked to meet an “exciting new“ short-term commercial lender for a small business. The excited and motivated head of sales told me if I didn’t agree to add them to our panel, we’d be the only ones missing out. Being totally focused on the welfare of our 1300 mortgage brokers nationally and less inclined to be motivated by FOMO than fully understanding the product and all the small print, T&C’s and the what if’s, I put forward the following question;
What’s the annual percentage rate? He answered, “I’m not sure.” I responded, “work it out, make a call, look at the contract, I need to know.”
He then told me that their annual percentage rate was 40%.
This rate means that it effectively rate balloons when a struggling business cannot fully repay the debt in the allotted time. Needless to say that the lender’s application to come on our panel was respectfully declined.
Interestingly, that lender was later added to our aggregator’s panel with a massive amount of fanfare, and now appears to be on more than 10 aggregator panels.
It seems unbelievable that these disruptor lenders fall outside of any real legislation. I completely agree with the ANZ CEO that this is a major issue that needs to be addressed. As a Vision mortgage broker, we have an obligation to look after our clients best interests. You can be absolutely certain that if and when a loan like this goes pear-shaped, attempts will always be made to blame the broker.
No matter the pressure, whether it is from client desperation or a push from these lenders, be careful. Ask yourself would I borrow from here? Would I allow a mate or family member to take out one of these loans?
The moral of the story is …
If in doubt, don’t!