While writing new loans in the private lending space has always carried a measure of risk given they are not governed by regulatory bodies nor are they controlled by industry bodies, private lenders must be assessed with an additional level of caution and diligence in a post-pandemic world, according to Glenn Mitchell, YBR Group head of commercial and equipment finance.
“I continue to alert our broker network to be very cautious of lenders advertising that they operate in this space,” said Mitchell.
The good news, as Mitchell sees it, is there are usually clear warning signs for brokers who know what to look for.
“There are rogue private lenders that set up flash websites offering to provide commercial finance for all types of lending, such as construction and development, land banking, specialised securities, bridging finance, rural, residual stock, bridging and mezzanine finance,” he said.
“They promote low interest rates to make their products appear more suitable, and higher LVRs than traditional lenders – suggesting that minimal financial information is needed.
“If you then review their websites, they mention multinational companies as being associated with them for funding lines. They tell brokers how quickly they can provide very fast turnaround for deals from $500,000 to $50m.”
However, despite these tactics intended to dazzle brokers, such sites have no listed company history, no directors’ backgrounds and nary a legitimate testimonials from past broker groups that have used their services.
“These supposed lenders can provide a fast loan approval terms sheet requesting payment of a non-refundable upfront fee together with valuation and legal fees to keep moving the deal along,” said Mitchell.
“Once these fees are paid to them, that’s when the warning bells will start ringing. The deal will stop, with no communication, or they will reply with reasons why the transaction no longer fits their lending criteria.
“The broker is then left with the dilemma of their client being out of pocket by $10k plus in most instances, or with having to cover the cost themselves.
“What action can be taken against these rogue private lending operators? The answer as of today is zero.”
What can brokers do about this? Hear more from Mitchell in Issue 17.18 of Australian Broker out Monday, 21 September