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The Consumer Financial Protection Bureau proposed a rule Wednesday to raise transparency around loans for small businesses.
If finalized, the federal agency’s rule would require lenders to collect and report more data about credit applications from small businesses, including demographic and pricing data and reasons for which lenders deny a loan.
The rule would help regulators learn how entrepreneurs fare when trying to access financing and what barriers may prevent them from doing so, according to Dave Uejio, the CFPB’s acting director.
The proposal applies to a broad range of credit, including term loans, lines of credit, credit cards and merchant cash advances. The public has 90 days to submit comment on the proposal.
“After homeownership, small business ownership is the primary means by which families and communities build wealth,” Uejio said. “Yet too often, small business development is starved for want of access to responsible, fairly priced credit.”
The Covid-19 pandemic exposed adverse economic effects when policymakers don’t have enough data to properly target credit, according to the CFPB. Many entrepreneurs struggled to access Covid relief funds, like those available through the Paycheck Protection Program, through certain banks, the agency said.
The bureau also announced Monday the creation of a web portal that small businesses can use to share stories with the regulator about applying for credit.