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Being a small business owner in the UK has arguably never been as challenging as it is today. At the same time, there are more exciting opportunities than ever for entrepreneurs to realise their dreams. But it costs money to act on these types of dreams – to start, build, maintain and expand a business. For most business owners, one of the chief challenges throughout the life of their enterprise is finding working capital that will allow them to boost their profits and grow their business. There are many legitimate sources for that capital, but there are also predators, some of whom are actively targeting small businesses. It’s important to know the difference between the good guys and the bad guys.

A new generation of predatory lenders

The National Association of Commercial Finance Brokers (NACFB), a financial trade organisation, has issued a warning for small businesses, cautioning that business owners who are desperate for loans are being targeted by dozens of dishonest new lenders. What makes this problem worse is that there are currently no rules in place to protect them from being fleeced.

The NACFB said that within the past two years it has rejected 40 new lenders that were petitioning to access its nationwide sales force of brokers who advise small firms on finance. This is a significant rise from the previous two-year period, during which only five lenders were turned down. The organisation rejected these lenders either because they charged outrageously high interest rates, refused to reveal their source of capital, or could not demonstrate a track record.

Adam Tyler, chief executive of the NACFB, said that many of the lenders in question were looking to take advantage of small businesses that had been turned down for funding by traditional high street lenders. He noted that because small businesses are doing better in the wake of the overall improvement in the economy, they are seeking more capital. If the banks won’t help them, they have to get the money from somewhere. Mr. Tyler said that some of the lenders targeting small businesses are as bad as the worst of the payday lenders in consumer credit.

Exacerbating the situation is the fact that whilst individuals and sole traders are protected by consumer credit regulations against lenders who charge exorbitant fees, limited companies are not. If they are left high and dry by a lender they have practically no recourse.

The takeaway lesson here, then, is: borrower beware.

When seeking a loan, arm yourself with knowledge

Not every lender targeting small businesses is a scammer, of course. And even though many legitimate lenders do charge higher interest rates to business owners with less than stellar credit or an insufficient history, that doesn’t make them a bad choice.

Most business owners will have to borrow money at some point; it’s just part of doing business. But it is important to find a reliable business lender who will offer fair rates as well as a straightforward loan agreement with no surprises. Ideally you want a loan provider that charges as few add-on fees as possible, such as origination, early repayment or arrangement fees.

In general a business must be in operation for a certain period of time – usually a minimum of six months – before being approved for a business loan. As well, there may be certain minimum revenue requirements. Eligibility factors vary according to lender, as do the amount you can borrow, the ways you can use the funds, and the terms. It is very important to do your homework and compare lenders. Knowledge is power, as the saying goes.

But all the knowledge in the world, or on the World Wide Web, can’t really provide a clear look into the future, and questions about the UK’s economic future have quite a few business owners on edge.

The future is an open book

Though some of the latest opinion polls in advance of the European Union referendum have shown that Brexit is gaining momentum, many people remain uncertain about exiting the EU. That’s because we’re in “uncharted territory”, according to Dr. Angus Armstrong, Director of Macroeconomics with the National Institute of Economic and Social Research. Dr. Armstrong explains that no country the size of the United Kingdom has ever left such an integrated economic union, so there is really no precedent on which to look back and from which to draw lessons. And small businesses are a key battleground in the Brexit war. After all, Britain’s small and medium-sized businesses make up 99 percent of businesses in Britain, employing 15.6 million people – about half of those working in the private sector.

Some business owners lament what they see as costly and unnecessary regulations imposed by the EU. They view Brexit as a break for freedom and new opportunities. Others, however, are uncomfortable with the uncertainties, which would likely hit smaller businesses harder than others, mainly by making it tougher for them to get loans because during times of stress, banks are reluctant to offer loans they consider to be riskier. Moreover the UK’s central bank, the Bank of England, has said Brexit would weaken the pound, increasing the cost of imported goods and fueling inflation. These projections have understandably made many business owners nervous.

Regardless of the outcome of the referendum, the challenges for small business owners won’t magically disappear, and among those challenges is the ongoing quest for capital. There will always be dodgy lenders targeting businesses and individuals that are desperate for money, but there are plenty of good lenders as well. Knowing the difference can help you keep your business on track for future profits and growth.



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