SMEs set to benefit from new lending code
A group of online small business lenders have come together in releasing a code of best practice lending principles aimed at providing security and assurance for small businesses.
Online lenders Capify, GetCapital, Moula, OnDeck, Prospa and Spotcap have signed on to a Code of Lending Practice outlining a series of best practice principles that will standardise transparency and disclosure in relation to the unsecured small business loans they offer.
The loans are typically for between 3 to 12 months and the majority of finance being below $100,000.
The code was modelled on best practice examples and feedback from the US and UK and is expected to be fully operational and enforceable by the end of 2018.
Some of the key elements agreed in the code include the introduction of a pricing comparison tool providing key metrics allowing customers to compare the cost of unsecured loans from the signatories.
Other elements include an easy-to-understand loan summary, a glossary of key terms in accessible language that applies directly to online small business loans.
Further, signatories must attest their compliance with the code on an annual basis.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell said online lending to small businesses has grown rapidly in recent years as small businesses are increasingly denied access to unsecured loans by traditional funding sources.
She said the code is a great starting point, calling it a proactive move to pull the obligations of online small business lenders together into one document, as well as make it easier for current market participants and will also help new entrants understand their obligations.
“The Code provides the principles and best practice guidelines for the broader fintech industry, however, at present the Code is limited to balance sheet lenders,” Ms Carnell said.
“I look forward to hearing from members of the roundtable held late last year and discussing how the broader fintech industry can move to adopt the Code.
“To further improve awareness and understanding by SMEs, theBankDoctor.org and the ASBFEO will shortly publish an information guide on borrowing from fintech lenders.”