The Small Business Finance Association (SBFA) has issued "Small Business Finance Principles" that represent best practices for providers of merchant cash advances (MCA) and other companies in the alternative finance industry offering alternative financing options to small businesses. The SBFA is a trade association representing MCA providers and other members of the alternative finance industry.

According to the SBFA, the principles are intended "to prove to small businesses that our industry will consistently offer transparent, fair, and responsible choices to meet their needs." The SBFA "encourages small businesses to obtain financing solutions from companies that follow" the principles.

The principles consistent of the following:

  • Transparency. Finance companies should "provide transparent information that allows small businesses to make educated financial decisions." Such information consists of disclosing all fees and various other terms, how the funding and repayment process operates, prepayment policies and whether prepayment penalties apply, explaining the reasons for rejecting an application for funding, and providing direct access to customer service representatives.

  • Responsibility. Finance companies should "only provide financing to companies that can reasonably afford the financial product without putting undue strain on the business." Implementation of this principle includes fully analyzing cash flow during the underwriting process to determine a small business' ability to service all of its financing obligations, treating a small business fairly if it defaults, ceasing electronic payments after repeated failures to clear, tracking loss rates, and following policies and procedures to comply with applicable laws.

  • Fairness. Finance companies should "be truthful and fair in dealings with small businesses." Implementation of this principle includes providing clear and understandable marketing materials, complying with applicable marketing laws (such as the Telephone Consumer Protection Act), providing a complaint process for small businesses, and providing a right of cancellation.

  • Security. Finance companies should "take seriously the responsibility to protect sensitive information." Implementation of this principle consists of adhering to rigorous privacy standards that comply with applicable law, obtaining proper authorization before sharing data, and using robust underwriting procedures that include certain safeguards.

Ballard Spahr's Marketplace Lending Task Force is nationally recognized for counseling marketplace lending businesses in both the peer-to-peer and small business spaces. We offer soup-to-nuts guidance, working with startup alternative lenders, long-established market leaders, institutional investors, and others. We document and advise on the structure and strategy of bank, platform, and investor relationships, assist in concluding account servicing arrangements, and provide extensive consumer regulatory advice and state licensing guidance.

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