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Fed Finds Mixed Views of Online Lenders and Products

June 29 — The Federal Reserve Board and the Federal Reserve Bank of Cleveland have released Browsing to Borrow: “Mom & Pop” Small Business Perspectives on Online Lenders. The report examines small business owners’ perceptions of online lenders and their understanding and interpretation of the information that online lenders use to describe their credit products.

Among the key findings from the study:

  • Most participants were aware of the products offered by online lenders.
  • Although some had positive views, participants also had negative impressions of the industry.
  • While browsing the websites of online lenders, participants generally reacted favorably to those with detailed product information and were often skeptical of those that withheld product details. When presented with sample online products, participants generally found the descriptions difficult to understand or lacking detail about costs and features.
  • Many of the small business owners participating in the study indicated a need for clear disclosure of product costs and terms. The findings suggest that improved disclosures could benefit both borrowers and lenders. 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 explores small business owners’ perceptions of nonbank online lenders as they are becoming more mainstream alternative providers of financing to small firms.

For this study, Fed researchers conducted online focus groups with 42 small business owners from across the U.S. who had at least one but no more than 20 employees; had less than $2 million in annual revenues; and had sought credit for their businesses in the prior 12 months.

The full report can be viewed here.

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