Study indicates better disclosures would improve views toward online lenders

Most small-business owners are aware of financial products offered by online lenders, which has led to mixed views among the small businessesbut better disclosures could improve overall attitudes, according to a study published Thursday by the Federal Reserve.

In the studyBrowsing to Borrow: “Mom & Pop” Small Business Perspectives on Online Lenders – the Federal Reserve Board and the Federal Reserve Bank of Cleveland reported that small-business owners reacted favorably to websites with detailed product information but were skeptical of those withholding product details. “When presented with sample online products, participants generally found the descriptions difficult to understand or lacking detail about costs and features,” the report states.

Small-business owners participating in the study largely indicated a need for clear disclosure of product costs and terms, the study states.

“The findings suggest that improved disclosures could benefit both borrowers and lenders,” the Fed said in a release. “Clear disclosures could enable borrowers to better evaluate products suitable for their businesses and could help lenders engender trust and grow their customer base.”

The study also explores small-business owners’ perceptions of nonbank online lenders “as they are becoming more mainstream alternative providers of financing to small firms,” the agency and bank noted.

The study was conducted through online focus groups among 42 small-business owners from across the country having at least one but no more than 20 employees; having less than $2 million in annual revenues; and which had sought credit for their businesses in the prior 12 months.

Browsing to Borrow: “Mom & Pop” Small Business Perspectives on Online Lenders (PDF)