Providers of online, payday and peer-to-peer loans for small businesses say they are increasingly concerned that the lack of regulation of the sector could see a few bad apples destroy it.
The growing industry has sprung up to help small businesses that face particular difficulties in accessing loans to prop up their business.
There has recently been an influx of lenders offering unsecured, high interest loans to companies with less than $100,000 in turnover, Fairfax reports.
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A number of the SME lenders who spoke to Fairfax said while many in the industry were lending responsibly, a lack of standards and regulation were of significant concern.
John de Bree, managing director of lender Capify, said more regulation was needed and cited the raft of regulators available to help consumers, such as the ACCC, APRA and ASIC, compared to the stark lack of regulation in the SME lending sector.
“On our side of the fence we have a flood of new entrants – where’s the regulation, where’s the tried and tested credit model?” he told Fairfax.
Neil Slonim, from theBankDoctor.org, told SmartCompany it would be a shame if the conduct of all lenders in the sector was besmirched by some who are doing the wrong thing.
“There is a real risk of the reputations of new breed of SME marketplace lenders being tarnished as we have seen with payday lenders,” he says.
“The biggest area of concern for borrowers is the lack of transparency in relation to fees charged.
“Ideally ASIC and industry participants will work together to ensure a fair, orderly and transparent market exists.
“One way of achieving this would be to require all lenders to publish fees using the Annualised Percentage Rate approach, which takes into account all fees and allows borrowers to conduct genuine apples with apples comparisons.”
Slonim says the industry has an important role to play in helping small businesses get access to finance and says regulation could help.
“The marketplace lending model has much to offer SMEs which struggle to get bank finance and it would be more than unfortunate if its undoubted potential was dashed by the unscrupulous conduct of a few,” he says.