Online small business lenders pledge to keep themselves in check

A group of leading online small business lenders recently released a Code of Lending Practice that aims to standardise the transparency and disclosure of their loan offerings.

The code defines the best practice principles and is a proactive move to compile the obligations of online small business lenders into one document, making it easier for market participants and entrants to understand their responsibilities.

Capify, GetCapital, Moula, OnDeck, Prospa, and Spotcap form the six signatories that collaborated extensively to craft the code. The six online business lenders reaffirmed “their commitment to meet all current legal and regulatory requirements, and adds an additional layer of transparency and disclosure that is not currently being provide in the market”.

Developed with the support of the Australian Finance Industry Association (AFIA), the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), BankDoctor, and Fin Tech Australia, the Code will be enforced by 31 December this year.

As traditional funding sources continue to limit their access to unsecured loans, online sources catering to the lending needs of small businesses have grown rapidly in recent years.  

“We're proud to be working together to take proactive steps to bring transparency to the market, and ensure we're doing what's best for Australian small business owners,” the six CEOs of the Code signatories said in a joint statement. 

Modelled from the US and UK
The code was patterned on best practice examples from the US and UK, where the online lending sector is considered more mature. A charter focused on governance will support the monitoring, review, and enforcement of the code.

 Key elements included in the code:

• The introduction of a pricing comparison tool providing key metrics that will allow customers to compare the cost of unsecured loans from the signatories (including the total repayment amount, APR, simple annual interest rate)
• An easyto-understand loan summary
• A glossary of key terms in accessible language that applies directly to online small business loans
• Signatories must attest their compliance with the Code on an annual basis

As AFIA develops the charter that underpins governance and standardises pricing and disclosure tools, it will appoint a Code Compliance Committee (CCC) to independently monitor and enforce the code.