By Gus Gilkeson
As ASIC looks towards which regulatory measures are required in private capital markets, the sector should welcome more regulation so consumers can enter into private credit agreements with increased frequency and confidence.
As someone who has worked in the sector for years helping businesses navigate the industry, I know that it provides an excellent, bespoke solution for many businesses when their model doesn’t fit the onerous requirements of the big four banks.
But the fact the sector is relatively new means it can be difficult for businesses to work out who the reputable operators are, and what constitutes acceptable practice.
That can lead to real problems, and some businesses have lost tens of thousands of dollars by signing up for loans with bad operators or with poorly defined terms.
To grow and be recognised as a legitimate funding option for businesses it could benefit, we need to ensure those businesses are protected.
There are basic measures that the regulators such as ASIC can take to protect everyone involved, measures that have been part of the growth of other financial services sectors.
In my experience, businesses who fall into the trap of signing up with bad actors in the industry usually do so because they are in a state of panic, often because an existing credit agreement they may have been depending on has fallen through, and they need fast solutions.
That leads down a bad path, of quick fixes and agreeing to short-term contracts, where there are often hidden pitfalls in the fine print, unconscionably high fees attached and on occasion, fees charged for no service provided.
To address this, some of the basic protections that extend to other financial services should also be extended to private credit. We need more transparency, particularly in terms of disclosure of company owners, fee structure and terms and conditions.
Limitations on what level of fees can be charged by a private lender is important, as are compulsory lender membership to industry bodies for complaint resolution, such as AFCA.
We need to ensure businesses are protect from fees for no service concerns – and that the signing of loan offers have cooling off periods.
These relatively simple initiatives will help create confidence in a sector that has a lot to offer by ensuring we are protecting anyone that seeks to access private credit.
Rather than be concerned about increased regulation, the industry should welcome it with open arms.
And for those who are looking to engage private credit, which does have a number of advantages compared to the traditional funding methods and the big four banks, some tips.
Firstly, check for AFCA or other Industry Body or complaints resolution body memberships.
Make sure you know who the actual owner of the lender is, not just the CEO or management team.
Additionally, make sure the lender you are dealing with controls the credit process and ideally is a credit signatory.
Talk to present and past staff of a lender to get a sense of the company and how bona fide an reputable they are.
And finally, keep an eye out for detail on websites. Reputable funders are happy to be identified and rated.
If the website doesn’t have faces, emails or contact numbers on it, be cautious!
About the author: Gus Gilkeson is the CEO of Grow Capital. This is an opinion column. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of this publication.
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