[Editor’s Note: This is a guest post from Brock Blake, Founder and CEO of Lendio, a marketplace for small business loans. ]
In the U.S., according to Morgan Stanley, the marketplace lending industry has seen loan originations double every year since 2010. In response to that growth, we’ve seen a growing debate about how best to support the development of innovative online lending platforms, as well as calls for enhanced scrutiny and regulation. In a short period of time we’ve also seen the emergence of different associations, among them the Marketplace Lending Association (MLA), Small Business Finance Association (SBFA), Innovative Lending Platform Association (SMART Box), Coalition for Responsible Business Finance (CRBF), and Responsible Business Lending Coalition, which introduced the Small Business Borrowers’ Bill of Rights (BBOR), each offering a recommendation for how best to address transparency for borrowers, governance and controls, risk management, and responsible lending.
As an industry I believe we should be focused on what unites us, rather than what divides us. So, to that end, I thought it would be interesting to lay out some key similarities and differences. Here’s a high level view:
|Organization||Coalition for Responsible Business Finance||Innovative Lending Platform Association||Marketplace Lending Association||Responsible Business Lending Coalition||Small Business Finance Association|
|Purpose||Educate policymakers about online business lenders; map out a list of best practices for online business lenders||Promulgate adoption of/ adherence to the SMART (Straightforward Metrics Around Rate and Total Cost) Box disclosure||Promote responsible growth of marketplace lending, fostering innovation in FinTech, and encouraging sound public policy||Encourage the entire small business financing industry to join in upholding “fundamental financing rights that all small businesses deserve”||To be the voice of the alternative financing industry for small businesses and establish industry best practices and education
|Key Principles||Simple, fast, affordable, and reliable credit products; best practices, education portal||Transparent, fair; a chart of standardized pricing comparison tools and explanations, including various total dollar cost metrics and an APR that enables an “all-in” pricing comparison of loans of equivalent duration||Transparency, fairness, responsible products, non- discrimination||Transparent pricing and terms, plain English, no hidden fees, non-abusive products, responsible underwriting||Transparency, responsibility, fairness, and security|
There are differences between these associations: the Marketplace Lenders Association and the Small Business Finance Association represent, and are open only to, specific industry sectors (marketplace lenders – non balance sheet lenders – and merchant cash advance providers, respectively) and both have more of an advocacy bent than the other three. The Innovative Lending Platform Association and the Responsible Business Lending Coalition are open to all who agree to abide by a set of standards and practices – the SMART Box and the Small Business Borrower’s Bill of Rights, respectively. And I’m sure there are more.
But, in looking at the purpose and key principles of these organizations, it seems to me there’s more common ground than not – and on the things that really matter, there’s a lot. The word “transparent” is used by four of the five (and it’s clearly bedrock to the fifth as well). The word “responsible” is used by three, as is “fair” or “fairness” (and the other two use equivalent words like “non-discrimination”). It’s clear that all, in fact, are committed to ensuring small business borrowers are able to get the capital they need with clear, transparent disclosures they can understand. That’s good news for small business borrowers – and for all of us in the industry.
So where do we go from here? Advancing the marketplace lending industry’s efforts to create a more transparent and efficient financial system is critical as the industry matures.
I believe there is a very clear and important distinction between consumer and commercial lending markets. Any industry-wide principle or solution will need to take that into account to be effective.
I also believe that lending models are changing, and that any successful solution will be based on understanding and enhancing the way small businesses approach, access and use capital to grow. We need to embrace the innovation that is providing much needed capital to underserved small businesses.
The good news is that small businesses today – even those with lackluster or thin credit history – can choose from a dynamic set of loan products including term loans (both traditional and short-term), business lines of credit, loans for startup companies, equipment purpose loans, various SBA loans, accounts receivable financing, merchant cash advances, and peer-to-peer loans. This is a far cry from where we were in 2008-2010, when (according to the Huffington Post) more than 170,000 small businesses shut down. Today, capital is generally available, and in a variety of forms. The challenge now is how best to communicate the true cost of credit to SMB borrowers, so that they can make informed decisions that keep their businesses healthy and growing.
At Lendio, we’re convinced that there needs to be a single, industry unifier – and we feel the SMART Box is headed in that direction. Lendio will now participate in the 90-day engagement period and I’m asking all those who offer loan products throughout the Lendio platform to consider doing so as well.
And, Lendio isn’t the only one supporting this initiative aimed at building industry transparency. It seems as though some unifying action might be taking place among these associations. Just this week, the CRBF also announced its support of the ILPA’s SMART Box. We’re beginning to make steps in the right direction.
As leaders and stewards in this industry, let’s rally around a common ground of best practices so the responsible flow of capital to Main Street continues and expands. Providing business owners with the best and most complete information is one way to make sure that happens.