Simon Culhane, chief executive of the CISI, questions the initiative fronted by James Caan, formerly of TV's Dragon's Den, which funds 18-30-year-old entrepreneurs with no track record.
Start-Up Loans Company provides mentoring and unsecured soft loans from £2500 to £20,000 and has lent over £46 million to more than 9000 individuals' businesses since it launched in May.
Mr Culhane,writing in Securities & Investment Review, says: "Although the financier is providing risky, soft-loan capital, its return is priced at only 3% over base rate and there is a capital repayment holiday for 12 months. This isn't the sort of deal that James Caan or his fellow Dragons would contemplate, yet it's in exactly the same high-risk category for which they would expect a potential high-reward return."
Mr Culhane said borrowers reported not being asked questions basic business plans or what happens when the limited funding ends. There was also no tracking of how the business was progressing or the funds being spent.
He says of those who appeared in front of TV's Dragons less than 10% received an offer, but the 'success' rate of Start-Up company applicants appeared to be closer to 50%.