Raising the Standards for Alternative Small Business Lending -- Choice Matters

Currently, there is a debate beginning to emerge in Washington, in Springfield, in Albany, and in other government centers about what sources of funding small businesses should be allowed to access. In a world in which small business credit through traditional bank loans has declined since 2006 and in a country where 69% of small businesses are unable to find adequate financing, it does not make sense that policy leaders would limit scarce sources of capital – even under a false mantra of “helping” small businesses.  In America, where free enterprise is synonymous with democracy, haven’t small businesses earned the right to decide for themselves what sources of funding best serve them? 

I’ve served as small business advocate in a variety of capacities for most of my career, championing the important role that small businesses play in the American economy. No one seems to doubt how vital small businesses are – Presidents tout them in speeches and regulators consistently vow to pass rules to support them. This focus makes sense, given that small businesses make up 99.7% of U.S. employer firms and are responsible for the creation of approximately 60% of the private sector’s net new jobs over the past 20 years. 

Despite the widely acknowledged value of small business to our economy, what has been fascinating to me throughout my career is the lack of dialogue between those who profess to “serve” small businesses and the businesses themselves. The result: many of the “rules” advocated to protect small businesses instead create barriers, expenses and challenges that stand in the way of a small business’ success. It is a shame that small businesses’ frustration with federal policies would be answered by “we were only trying to help.” 

While I believe firmly in an entrepreneur’s right to fail or succeed based on their own decisions, I also believe that lenders must offer responsible, trustworthy solutions. And, that’s why I agreed to serve as the leader for the Coalition of Responsible Business Finance (CRBF), which was founded by a group of lenders, who are small business owners themselves, to advocate for sound lending alternatives and innovative solutions. 

Most important to me is our reliance on the small business community for input and advice. Our Advisory Board is made up of officials from organizations like the National Small Business Association (NSBA), the National Federation of Independent Business (NFIB), the Small Business Investor Alliance (SBIA), and the Small Business & Entrepreneurship Council (SBE Council). We strongly believe that to create the best experience, both lenders and borrowers need to sit at the same table and craft policies together. 

As part of our effort, we are publishing our Code of Ethics and Best Practices for small business lending, aimed at setting a high standard for our industry. These are principles and practices that all of our members have agreed to and are advocating for. They include defining what constitutes transparent and comprehensive offers and terms, a commitment to avoiding any deceptive or unfair practices, how to handle refinancing, and what underwriting and collections practices will be employed. Because contracts involve two parties, the foundation of our Best Practices is the responsibility that rests with both borrowers and loan providers. 

This collaborative approach enabled us to make sure what we thought small businesses needed from a trusted funding partner actually matched the realities of the demands they face and the things they need. We strongly support a smart federal regulatory structure that echoes this approach, giving small businesses owners a central voice in the process and ensuring that any new rules are sensitive to the needs of small businesses. We owe it to those who have taken the bold and brave steps of starting and running businesses to support and encourage their growth, and to give them the freedom and room to be successful. 

CRBF members are proud to be part of an industry that serves as a source of reliable, trusted funding for many, and we appreciate the participation of our Advisory Board members in guiding our work and giving voice to the real needs of millions of small business owners. We hope others advocating for rules choose to listen, too. 

Tom Sullivan is an attorney with the law firm of Nelson Mullins Riley & Scarborough, LLP in Washington, DC.  Tom Sullivan was unanimously confirmed by the U.S. Senate to serve as Chief Counsel for Advocacy at the U.S. Small Business Administration from 2002-2008 and he currently serves as the Executive Director for the Coalition for Responsible Business Finance (CRBF).