Despite its clear benefits, the short-term industry has long been perceived as an unregulated market full of sharks that charge excessive interest rates to accommodate ‘last-option’ finance for commercial and personal lending.
That is despite the fact that short-term lending is growing throughout the world.
Short-term loans provide an often crucial cash injection to enable businesses to expand and bypass cash-flow issues, including paying creditors, purchasing stock, paying ATO and BAS, and providing working capital or bridging finance.
Assuming rates are competitive, such loans provide a positive alternative to clients who may not meet institutional lending standards. However to focus on impaired or non-compliant borrowers would not do this segment justice. The ability to settle a transaction in a fraction of the timeframes adopted by major lenders is a key driver for many applicants. Business opportunities and conversely their challenges are, however, far less structured. Modern-day commerce demands an appropriate, streamlined and more flexible loan product.
So why does short-term lending have a bad rep? The industry has been long-associated with questionable ethics. This has been fuelled by the autonomy of the individual lender and their personal code of conduct combined with the lack of regulation previously applied to the sector. This has also translated into excessive rates and lack of uniformity in the loan process.
The short-term finance industry is by no means a new sector. Its colourful perceptions are often attributed with small, unsecured cash transactions followed by unconventional means of securing debt. Conversely, the sector that commercial lenders and brokers operate has a much different landscape. This is largely influenced by a fundamental market shift to support professional practices and corporate business models that fulfil the demand for two primary product areas – business loans and consumer bridging finance.
The introduction of the NCCP legislation has been a game changer. Combined with the GFC, many rogue operators have been flushed out of the market, however the non-code segment still needs some fine tuning. There remain a few operators in this space whose business model and ethics could at best be described as questionable. With some research, brokers can be assured that loans written in the short-term sector will be compliant based on the established processes and regulations now applied as an industry standard.
This now provides a solid platform for reputable operators who are committed to rate-driven, service-oriented solutions. The translation: with a growing number of professional operators, brokers are in an ideal position to ensure they receive competitive rates.
We encourage brokers to realise the potential of this growth market and the lucrative opportunities with confidence.