The Innovative Lending Platform Association (ILPA), a trade body comprised of three of the US’ largest online lenders for small businesses, has launched a new tool by the name of SMART Box (pictured below).
Kabbage, CAN Capital and OnDeck came together to form ILPA in May of this year, less than a month after the inception of the Marketplace Lending Association – which was founded by Lending Club,Prosper and Funding Circle.
First on the agenda for ILPA at launch was the launch of SMART Box – which stands for Straightforward Metrics Around Rate and Total Cost. The tool is designed to bring about more standardisation in pricing disclosure across the small business lending spectrum, allowing business owners to more confidently assess and compare financing options.
There are three different, product-specific versions of the SMART Box: one for term loans, one for lines of credit and another for merchant cash advances. But while there are multiple versions of the tool, ILPA says that each iteration adheres to the same set of pricing metrics, calculations and standardised language.
The core features of the SMART Box include an outline of the basic elements of the finance option in question (including amount financed, funds disbursed, total repayment amount, expected term and frequency of repayment). There are then four common pricing metrics: total cost of capital (TCC), annualised percentage rate (APR) (which is estimated for merchant cash advances), the average monthly payback, and the cents on the dollar cost of the funding option.
The launch of the SMART Box initiative has been lauded by such groups as the National Small Business Association (NSBA) and the Association for Enterprise Opportunity, which called it “a game changer”.
"… We are exceptionally proud of this collaborative effort to establish industry-wide transparency best-practices that benefit our customers," said Noah Breslow, chief executive officer of OnDeck."It is our belief that the SMART Box will become the national model for small business lending disclosure.”
But Brayden McCarthy, vice president of strategy at small business lending platform Fundera, says that while SMART Box is a great first step for lenders, it's not necessarily a fit for "credit marketplaces". “... If the question is, does SMART Box represent a marked improvement over the status quo, the answer must be an unequivocal "yes",” said McCarthy. However, Fundera will not be adopting the SMART Box, stating that the current structure could lead to “information overload” for borrowers when attempting to compare multiple loan options.
Fundera is a multi-lender credit marketplace with over 30 lenders offering a variety of products through the site. In comparing loan options, Fundera focuses on just “a handful of the key metrics”, seeking to balance “substance with simplicity”.
McCarthy says that he has particular concerns about the SMART Box’s prepayment section, however he adds that Fundera looks forward to working with ILPA “as they seek to improve” the newly launched tool.