The Innovative Lending Platform Association, established May 5, 2016, marks an industry milestone for marketplace lending. Formed by On Deck Capital Inc. (OnDeck), Kabbage Inc., CAN Capital Inc. and the Association for Enterprise Opportunity, the trade association aims to advance online lending through education, advocacy and best practices.
Online lending platforms OnDeck, Kabbage and CAN Capital typically match small business borrowers with investors; the companies have jointly provided access to more than $12 billion in funding in recent years. The fourth founding partner, the AEO, is a trade association focused on microfinance and microbusiness solutions. It brings considerable experience in developing a successful member organization and working with entrepreneurs, making it an ideal facilitator for the new association, the ILPA stated.
The ILPA will initially focus on improving transparency and simplifying disclosures related to small business loans. "As our industry rapidly evolves, we believe it is critical to provide the tools and transparency businesses need to make informed borrowing decisions," said Kathryn Petralia, co-founder and Chief Operating Officer at Kabbage. "We are thrilled to take our commitment to SMBs to the next level by joining this group of fintech leaders to launch a clear methodology for how fees are calculated and communicated to borrowers."
In June 2016, the ILPA will launch a 90-day "national engagement period" for its SMART Box initiative, a project designed to create universal language and product comparison tools. SMART, an acronym for Straightforward Metrics Around Rate and Total Cost, will enable comprehensive comparisons of various loan products. Borrowers can use the SMART Box platform to make "apples-to-apples comparisons" of lending options.
"The SMART Box Initiative could be a game changer in driving small business ownership through greater inclusion to capital access," said Connie Evans, AEO President and CEO. "It should go far in helping business owners, particularly those in underserved communities, navigate the new frontier of lending options."
SMART Box research began in 2015, when association founders aggregated data from small business surveys and industry metadata derived from customer profiles to create a framework for the project. They expect feedback from lenders, trade associations, policymakers and nonprofit organizations to add value to the SMART Box model. Additional information regarding the SMART Box initiative is available at www.innovativelending.org.
In a white paper titled Opportunities and Challenges in Marketplace Lending and published May 10, 2016, the U.S. Department of the Treasury takes aim at unregulated aspects of online lending. The paper suggests the industry is relatively young and calls for enhanced safeguards designed to protect small business owners and consumers.
The association's website highlights differences between consumer and commercial lending. There are "very clear and important distinctions between consumer and commercial lending markets that should be carefully and thoughtfully considered," the ILPA wrote. "We look forward to continuing to work with policymakers to ensure that these differences in how and why small businesses approach and access capital are understood and that the responsible flow of capital to Main Street is uninterrupted."
Sean Murray, Chief Editor and publisher at deBanked, is encouraged that lending companies are at the helm of the new association and will take an active role in the SMART Box initiative. A uniform voluntary disclosure box would ideally capture the informational metrics that a lender can calculate and disclose, which differs from the calculable scope of a purchase transaction, Murray noted. "Increasing transparency is a positive thing, but it must be applied logically and intelligently," he said. "If both lenders and MCA companies at least change certain aspects about how they disclose key metrics, then the association's initiative will have succeeded, whether mass adoption of the SMART Box takes place or not."
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