The way small businesses borrow money is being transformed.
Innovation is creating faster and easier ways to borrow and increasing access to credit. However, irresponsible practices are growing as well. The transformation in small business financing that we are experiencing will achieve its potential only if it is built on transparency, fairness, and putting the rights of borrowers at the center of the lending process.
The Small Business Borrowers' Bill of Rights is the consensus industry standard for responsible business lending, developed by for-profit lenders, nonprofits, and small business groups. It identifies six fundamental financing rights that we believe all small businesses deserve. These are made up of 24 specific practice standards, in the drop downs below, that responsible financing providers adhere to:
i The term “loan” and related terms used here, such as “lending,” are intended to be interpreted in the broadest sense to refer to all business financing, including loans, lines of credit, merchant cash advances, factoring, and similar products offered and provided to U.S. small businesses. Similarly, the terms “lender” and “borrower” are intended to be interpreted in the broadest sense to include, in the case of lenders, merchant cash advance providers and credit marketplaces that facilitate loans on behalf of lenders.
ii The Small Business Borrowers Bill of Rights has been updated in the December of 2020 to incorporate feedback and learnings since the previous revision in 2017. The Small Business Borrowers’ Bill of Rights was first launched in August 2015.
iii The annual percentage rate (“APR”) is the total cost of financing, including interest, fees, and other required charges, annualized and expressed as a single percentage number. APR is the only established metric that enables informed price comparisons between products of different types, amounts, and term lengths. This is why APR has become the long-standing price metric that people are familiar with, vetted over 50 years of the Truth in Lending Act. An “Estimated APR” should be used for financing such as merchant cash advances, factoring, and similar products with variable term lengths. For a more detailed description of APR calculation, please see the Small Business Borrowers’ Bill of Rights attestation forms.
iv Lenders currently utilizing confessions of judgement (COJ) are granted 180 days from the date of signing their attestation form to comply with the COJ prohibition. A limited exception to the prohibition is provided for certain Small Business Administration (SBA) loans, for which SBA requires a COJ clause (borrowers based in MD, VA, and PA). The Responsible Business Lending Coalition urges the SBA to remove all COJ requirements, both optional and mandated, from SBA loan documents moving forward.
