Small Business Borrowers Bill of Rights
When you apply for small business funding, you might be worried about finding the right product and getting approved. If you only focus on the interest rate and application process, however, you could miss warning signs that your lender is not operating in your best interests. Predatory lenders do, unfortunately, exist. This is why the Responsible Business Lending Coalition created the Borrowers’ Bill of Rights to combat dishonest or unethical lending.
Borrowers who seek capital will have the reassurance that lenders who participate and comply with the Borrowers’ Bill of Rights are operating ethically. The bill lays out the following rights for borrowers. The right to;
- Clear pricing and terms
- Non-abusive products
- Responsible underwriting practices
- Fair treatment from brokers
- Non-discriminatory lending
- Fair collection practices
Clear pricing gives borrowers the annual percentage rate, which takes into account both the simple interest and any fees. Disclosing the terms lets borrowers know how long they will be repaying the loan, and often the associated monthly payment and the loan’s total cost over its life. Non-abusive products seek to prevent borrowers from falling into a never-ending cycle of reborrowing if they cannot repay their first loan. All of the business loan’s terms should be clearly presented in a format that is easy to compare when shopping with other lenders.
Responsible underwriting practices ensure that a borrower can repay the loan given their current financial circumstances. The coalition does not want to see borrowers go into default or take out loans that they could cripple their business if they struggle to repay them. Knowing that borrowers do not always have the expertise to analyze their financial situation, the coalition wants lenders underwriting processes to assess a borrower’s ability to repay thoroughly.
Related to this, they want brokers to disclose any incentives and commissions that they receive when selling a loan product. The concern is that a broker will sell a lender a more-expensive product which doesn’t suit their needs simply to get a bigger commission.
The Equal Credit Opportunity Act protects borrowers from discrimination on the basis of race, religion, sexuality, color, national origin, marital status, age or identity. The Borrowers’ Bill of Rights reminds lenders that they should comply with this act and not engage in discriminatory lending. Discriminatory lending is not just denying someone a loan on the basis of their race. Discrimination also occurs when a lender offers a higher rate or less advantageous terms to a borrower, such as an African-American, than they do to a borrower with a similar credit profile but who is a different race.
Fair collection practices still treat borrowers with respect and courtesy even if they are having difficulty repaying their business loan. If it becomes necessary to initiate collection on a past due loan, the lender should still treat the borrower fairly and respectfully.
Ultimately, the coalition and lenders who comply with their guidelines want to see small business borrowers succeed. They know that the right small business loan can spell continued growth and success. If you borrow from Shield Funding, you can be confident that we take every effort to ensure transparency throughout the entire lending process and our group of loan experts are available to answer any and all of your questions before, during, and after you receive your small business loan.