If someone gives you money now with the promise to pay them back more money later, is that a loan? It depends on who you ask. This is just one of many questions that might be explored through a new inquiry by California’s Department of Business Oversight (DBO), our state regulator. As Opportunity Fund has written about previously, alternative lending holds both promise (quicker financing) and peril (nontransparent and unaffordable terms) for small business owners. In some cases, financing offered to small businesses doesn’t meet the technical definition of a loan and therefore is subject to no oversight whatsoever.
We believe that this inquiry is a positive development in order for regulators to better understand this rapidly evolving industry. At this time, DBO has asked fourteen financing companies to comment, which does not include Opportunity Fund. However we would welcome the opportunity to comment on what we have seen lending to small businesses across the state. In particular we would encourage regulators to take a look at the Small Business Borrower’s Bill of Rights which lays out best practices for responsible lending as well as the abusive practices every business owner should seek to avoid. Here’s hoping our home state continues to take a leadership role on this important issue.