Online small business lenders are now operating in compliance with a code of practice signed in July.
The Australian Finance Industry Association (AFIA) Online Small Business Code of Lending Practice outlines best practice principles to standardise transparency and disclosure in relation to small business loans.
Six original signatories to the code plus a seventh lender were compliant ahead of the end of 2018 deadline. These lenders are Capify, GetCapital, Lumi, Moula, OnDeck, Prospa and Spotcap.
The code will support small business borrowers in several ways, including providing a clear loan summary sheet before the loan is accepted, ensuring the lenders prove compliance with Unfair Contract Terms provisions and having a Code Compliance Committee to oversee lenders’ compliance with the code.
The code will also provide borrowers with a SMART Box, a tool which will allow them to easily compare different online lenders’ small business loan product pricing.
AFIA said the transparency and disclosure provided by the SMART Box establishes a new level of industry best practice in the small business finance space.
While the lenders are already subject to regulation such as the ASIC Act, Privacy Act, Anti-Money Laundering laws and more, the code is a move by lenders wanting to comply with a standard above those requirements.
Beau Bertoli, co-founder and joint CEO of Prospa, said, “Prospa has consistently been committed to helping lift transparency across the industry and transform the way small business owners experience finance.
“Our focus has always been on putting customers at the heart of our business and doing the right thing by them.
“The introduction of SMART Box to all of our loans will make it even easier for small businesses across Australia to review and compare unsecured small business loans to support their business.
“We continue to encourage other small business lenders in the industry to engage with AFIA and sign up to the Code of Lending Practice.”
The Code Compliance Committee (CCC) is an independent governing body to monitor and enforce the code. It has the power to investigate potential breaches and to conduct audits into the processes and systems of the lenders.
SME advocate, Neil Slonim, from theBankDoctor.org, said, “AFIA and the seven compliant online balance sheet lenders are to be congratulated on establishing the first Code of Lending Practice for Australia’s burgeoning non-bank SME lending sector.
“As SMEs increasingly look for finance outside the big four banks, it is more important than ever that they are able to easily work out the total cost of finance and make apples with apples comparisons between alternative lenders.
“The SMART Box pricing comparison tool and other features within the code such as the loan summary will enable them to do this.
“Pivotal to the effectiveness of the code will be the role of the CCC. The three members of the CCC are extremely knowledgeable and experienced individuals whose role is to ensure signatories comply with the code”.
“AFIA and the founding signatories to this code have set an example in transparency and disclosure that all non-bank SME lenders should follow.”