The warning came from Brightstone Law, which added that there could be a positive opportunity for experienced brokers to partner with these new lenders and support their stable growth.
The firm noted there had been “a surge of new short-term lenders entering the market” over the last 12 months, with the total up by 50% on 2017.
But it highlighted that this had come with bigger risks being taken in an unregulated market which was easy to enter.
Senior partner Jonathan Newman said: “While some lenders have applied greater caution in underwriting, others have seized the opportunity to gain a foothold.
“Short-term commercial lending is regarded as the last area of unregulated lending, and therefore relatively quick and easy to set up to lend and open to all.
“With the current climate among institutional lenders remaining cool and processes viewed as tiresome, labour intensive and unsatisfactory, significant volumes of finance are being redirected into the short-term lending space.”
It was the lack of knowledge and expertise of these new entrants which most concerned Newman, along with greater risk-taking which could result in expensive mistakes for all concerned.
“We are also seeing a loosening of lending criteria and increased flexibility from new lenders entering the market,” he said.
“These new entrants are driven, passionate and have a willingness to adapt and innovate. They will disrupt the market, just like the first wave of challengers did 10 years ago.
“However, what is deeply concerning is that some of these new lenders lack experience and so have the potential of being exposed to poorly non-performing customers, or unsuitable security.
“Many of these new players are unable to identify future problems and may not have the personal know-how, gained from experience, to deal with problem issues in an effective and sensible way,” he added.
As a result, Newman suggested there were opportunities for brokers to work with new lenders to ensure they did not make expensive mistakes and could settle in to a stable market position.
And he praised the resiliency of the sector, noting the current economic and property market conditions do not seem to have adversely affected transactional volumes or lender appetites.