Code of Ethics
Whereas, the Innovative Lending Platform Association (the “Association”), its member organizations (the “Members”), and board members represent a diverse set of small business financing platforms and other small business stakeholders interested in the health and success of the small business economy;
Whereas, access to capital is vital to the small business economy as it enables small businesses to manage their liquidity, hire key personnel, seize opportunities, and invest in the economic future of their businesses, thereby facilitating economic growth;
Whereas, our Members believe in the dedication, sophistication, knowledge and resolve of America’s small business owners and further believe that small businesses power the economy and drive job creation;
Whereas, efficient access to capital is particularly important to and challenging for small businesses, and our Members provide capital or enable capital providers to provide capital;
Whereas, small businesses require tailored and diverse finance options to meet each small business’s unique capital needs;
Whereas, our Members believe that small businesses benefit from the competition and availability of a broad array of responsibly delivered financing options from both traditional depository institutions and non-depository financing providers;
Whereas, our Members believe that small businesses benefit from the use of technology that simplifies the process of obtaining financing and enables a broader universe of small businesses to access capital from responsible providers; and
Whereas, our Members believe that small businesses should be provided with clear, consistent, and accurate information to make informed decisions regarding financing options to meet their particular needs and circumstances.
Resolved hereto, our Members are committed to the following best practices to support continued access to capital for small businesses:
Set forth below are the Association’s best practices for Members involved in providing, facilitating, and supporting the provision of capital to small businesses. For purposes hereof, the terms “Financing” or “Capital” shall not include equity financing arrangements.
1. Offers of Capital or Financing Should Be Transparent and Comprehensive
Disclosures to small businesses should contain clear, accurate, and complete information on fees, payment structure, total contractual amounts owed, collateral or security requirements, and should allow a customer to assess, as appropriate, the benefits, as well as the cost considerations, involved in borrowing, prepaying, renewing, or refinancing an existing product. Accordingly, our capital provider Members are committed to:
- When delivering a Provisional Offer (if applicable) of capital to a small business, clearly disclosing that the offer or proposed terms are subject to additional underwriting or requirements.
- When delivering a Binding Offer and Contract, presenting:
- A comprehensive pricing disclosure, either:
- The SMART Box™ – “Straightforward Metrics Around Rate and Total cost” – a comparison tool intended to foster common verbiage and enhanced disclosure standards around a comprehensive set of pricing metrics; or
- A SMART Box™ equivalent disclosure that includes at least the following pricing metrics as defined by the SMART Box™:
- Total Cost of Capital;
- Annual Percentage Rate (“APR”);
- Average Monthly Payment; and
- Cents on the Dollar (or an equivalent interest expense metric, such as simple interest or total interest percentage).
- The type of contract that is being offered (Equipment Lease, Equipment Financing Contract, Installment Loan, Line of Credit, Term Loan, Fixed Repayment Term Loan, Purchase of Receivables, Purchase of Future Receivables, Invoice Discount Contract, or other type).
- Upfront fees or charges that are charged as a condition of receiving capital.
- Recurring fees or charges, including any fees resulting from subsequent draws from lines of credit (or incurred during a point of sale transaction) and any contractual fees that will be paid by the applicant over the life of the contract.
- Net proceeds available to the applicant (specifically, the principal amount of the contract less upfront fees); or, in the case of lines of credit or similar products, the maximum draw amount (less upfront fees).
- Payment / delivery structure, specifically:
- The frequency of payments, or in the case of a merchant cash advance or purchase of future receivables, the frequency of delivery;
- The dollar amount of payments or deliveries, where applicable; and
- The delivery percentage, or other description of how periodic receivable delivery is calculated, where applicable.
- Total repayment amounts that will be made by the applicant on the contract if paid through maturity or completion (inclusive of any contractual fees).
- The amounts owed if applicant elects to pay off the contract prior to maturity (or a description of how such amounts are determined).
- If a renewal or refinancing of the finance product is possible: disclosure regarding whether all outstanding interest or fees are forgiven upon renewal or refinancing, and if not, then disclosure of the terms of such renewal or refinancing, for example, that all or any portion of a refinance or renewal will pay off the existing balance, which includes remaining interest or fees on the original loan.
- All of the other key terms in a readable and accessible paper or electronic document, including:
- The amounts owed if the applicant is deemed delinquent (or a description of how such amounts are determined).
- Events that would trigger a default on the contract.
- A comprehensive pricing disclosure, either:
2. Small Business Customers Should Be Treated Fairly
Small businesses should be treated fairly and with respect. Accordingly, our Members are committed to:
- No Unreasonable or Artificial Pressure to Accept Offers – applicants should have reasonable time to review and consider a Member’s offer for a financing option, free from undue pressure or unreasonable timelines, and small businesses should not be misled or pressured into finance agreements or transactions that intentionally result in a default with an existing capital provider or lender.
- Accurate Solicitations and Advertising – Solicitations and sales materials should disclose key terms important for the small business to understand the product being offered, and reflect the products generally available to the audience (for example, with respect to the speed of delivery).
- Marketing, solicitations and sales materials should not refer to or portray cash advances, factoring, purchases of receivables or purchases of future receivables as “loans,” “credit”, or use any other term that would reasonably lead a small business into believing they are being offered a loan.
- Protect the Privacy and Security of Customer Information – Members should protect the privacy and security of potential and existing customer information, and provide transparent disclosure regarding how customer information is and might be used.
- Prompt Payoff Assistance – If a customer seeks to prepay a contract, promptly provide any information required for prepayment, including a payoff letter, which details amounts owed in a clear and concise manner.
- Adhere to Electronic Payments Requirements – Members should cease reinitiating automatic ACH debits after consecutive returned debits in accordance with the applicable NACHA Operating Rules and Guidelines.
- Treat Customers Facing Hardship Fairly
- Work with small businesses facing financial hardship with the goal of finding solutions that can help them manage through their hardship.
- Perform reasonable vetting of third-party debt collectors and debt buyers. Our Members should abide by the principles and spirit of fair debt collection laws.
3. Capital to Small Business Customers Should Be Offered Responsibly
Adherence to applicable state and federal law is an obligation every capital provider and lender must take seriously and precedes the commitment to abide by this Code of Ethics. Accordingly, our Members are committed to:
- Abiding by all applicable federal and state lending laws and regulations, including non-discrimination at any stage of a product cycle.
- Designing financing practices to avoid perpetuating a harmful debt cycle for the small business customer.
- Assessing Capacity to Repay and Avoiding Over-Indebtedness – Capital should be responsibly extended based on the Member’s reasonable determination of a business’s capacity to repay the loan or finance product, appropriately-sized, and consistent with the business needs of the customer.
- Performing reasonable vetting and review of third-party intermediaries (e.g. brokers) that refer loans or finance products.
- Exploring opportunities to enhance publicly available data and information sharing with the goal of preventing fraud.
- Taking appropriate steps to ensure their services are not used for illegal purposes.
4. Agents and Brokers
Members are committed to encouraging their Agents and Brokers to (or if such Member is an Agent or Broker, then are directly committed to) adhere strictly to all applicable laws and treat small businesses honestly and fairly, including to:
- Honor the same disclosure and transparency principles as outlined above.
- Disclose all suitable financing options for which the applicant has qualified through the Agent’s or Broker’s services.
- Ensure that there is a factual basis for all representations made by the Agent or Broker to the applicant, and that such representations and related materials draw the applicant’s attention to key terms that are important for the applicant to make an informed decision about whether the product or service meets the applicant’s needs.
- Address in a timely and fair manner complaints brought by an applicant or customer.
- Never engage in “bait-and-switch” or other unfair sales tactics, or broker a finance product when it is clear the small business is unable to repay such finance product.
5. Implementation of the Code of Ethics
Fair transactions depend on the responsibility of all parties involved. Accordingly, our Members are committed to:
- Adopting this Code of Ethics.
- Ensuring that the appropriate components of this Code of Ethics are:
- Reflected in employee training;
- Incorporated as part of the Member’s formal policies; and
- Reflected in agreements with partners, Agents, and Brokers, as appropriate.
- Establishing internal procedures for handling customer complaints.