Australian providers of online, payday and peer-to-peer loans for small businesses say a lack of regulation means the entire sector’s reputation is put at risk by the less scrupulous operators.
A new US initiative could provide the solution to these very real concerns. The Responsible Business Lending Coalition, a group of US lenders, brokers, think tanks and small business advocates recently launched the Small Business Borrowers’ Bill of Rights in order to foster greater transparency and accountability across the SME lending sector. The bill outlines six key rights all small business borrowers deserve:
1. The right to transparent pricing and terms, including a right to see an annualised interest rate and all fees.
2. The right to non-abusive products, so that borrowers don’t get trapped in a vicious cycle of expensive re-borrowing.
3. The right to responsible underwriting, so that borrowers are not placed in loans they are unable to repay.
4. The right to fair treatment from brokers, so that borrowers are not steered into the most expensive loans.
5. The right to inclusive credit access, without discrimination.
6. The right to fair collection practices, to prevent harassment and unfair treatment.
Karen Mills, the influential former head of the US Small Business Administration said, “small business owners are seeing the number of alternative sources for financing their companies grow at an unprecedented rate, and while this is a good thing in terms of increasing access to capital, borrower protections have not caught up. Seeing industry and other stakeholders take responsible steps toward ensuring the basic rights and safeguards is noteworthy and will help shape the dialogue going forward in a way that protects America’s small businesses, without stifling innovation and access.”
Renowned US small business expert Charles H Green said, “this reassures us that there are some adults in the room to lead the fintech industry toward profitable outcomes, rendered from ethical operations. Honest dealing and transparency between borrower and lender are foundational requirements of a sustainable business model that ultimately benefits long-term economic growth.”
Prominent amongst the supporters of the bill are two of the biggest global marketplace lenders Funding Circle and Lending Club. Funding Circle’s co-founder Sam Hodges said “we are proud to partner with other industry leaders to defend Main Street from predatory players and set the first-ever gold standard for a transparent, accountable and fair small business lending market.”
Lending Club’s chief executive Renaud Laplanche said “we believe setting consistent rights and principles for the benefit of small business owners is necessary and important. We hope the entire small business financing community will join us in upholding these rights.”
Australian marketplace and other small business lenders fearful of the risk posed by predatory operators might want to consider establishing an Australian Responsible Business Lending Coalition.
Aris Allegos, chief executive of Moula, noted “the alternative lending segment is still new in Australia and as such is yet to progress a bill of rights, nonetheless it’s incumbent on the more developed platforms, Moula inclusive, to sponsor such an initiative.”
ThinCats chief executive Sunil Aranha expressed a similar view: “I think there should be some regulation or self regulation around ethical lending given that small business directors are essentially consumers and should have similar protection as consumer lending”.
Of course, the creation of an Australian borrowers’ bill of rights will not immediately lead to a transparent and fully accountable small business lending market but it will increase the likelihood that lenders and also brokers who do not follow best practices will either change their ways or be held to account.
An Australian Small Business Borrowers’ Bill of Rights sponsored by a coalition including lenders, brokers, regulators, the Small Business Commissioner, COSBOA and high-profile individuals like Bruce Billson and Mark Bouris could be the catalyst in affording small business borrowers the level of protection they need and deserve.
Neil Slonim is a business banking advisor and commentator and is the founder of theBankDoctor.org which provides free, independent SME banking advice.