Taming the “Wild West” of non-traditional loans

    Louis Green

    Recent scrutiny of the non-traditional loan industry has had me checking my compass to get my bearings.

    You see, whenever a new industry emerges quickly into the spotlight, it is often referred to as the Wild West of whatever industry used to hold its place. Bitcoin has been called the Wild West of currency. The Arctic has recently been called the Wild West of oil discovery. Napster, mobile marketing, peer-to-peer video streaming, embryos, e-cigarettes, and even arborists (!) have all been referred to in this manner. The phrase indicates that there’s lots of fast money to be made while regulatory bodies struggle to keep pace with innovation.

    Last month’s New York Times article, “Pitfalls for the Unwary Borrower Out on the Frontiers of Banking,” chronicles a number of individuals and two small businesses that have had negative experiences with non-traditional lenders. The article all but explicitly names non-traditional lending as the Wild West of banking. It’s a shame that it has come to this.

    The lenders’ technological efficiency can also have a dark side.

    New Innovative Products, a maker of specialty carrying cases in North Carolina, borrowed $70,000 in December from OnDeck, an online lender whose largest shareholders include a venture capital unit affiliated with Google. OnDeck was allowed to withdraw $604 from the company’s bank account each day.

    But OnDeck crossed the line, according to a bankruptcy judge, when it kept collecting payments after being informed multiple times that the company had filed for Chapter 11 bankruptcy protection. In July, a bankruptcy judge imposed sanctions on OnDeck and ordered the lender to return the money.

    These anecdotes are a disappointment, because this new method of lending has the potential to do a lot of good for small and diverse business owners who have been historically shut out of the traditional loan market. Just this week, the company in question issued a statement that strikes the right tone about helping suppliers, but makes no indication of any plan to change their practices. And it’s not just about tales of over-withdrawing from suppliers. New non-traditional lenders are routinely inflating rates and taking advantage of suppliers in need.

    Using the latest technology and talking outwardly about a new way of doing lending is a great proposition, but it needs to be followed through with reasonable rates and respectful business practices. Right now many of these hyped online lenders make it clear that suppliers can get money easily without having to suffer the indignity of pleading with their local bank, but the lenders do so without disclosing the extraneous costs that they wallop their borrowers with. In essence, they distract borrowers with the convenience of what they offer, but then overcharge borrowers the old fashioned way — with high fees and inflated rates.

    Sooner or later, suppliers are going to wise up and seek better providers elsewhere. Speaking of which — that’s why we at Supplier Success have partnered with both traditional and non-traditional lenders to offer small and diverse suppliers the best receivables finance rates on the market. We may not dazzle you with our verbiage or an interface that looks like Kayak.com, but we’ll give you our word that if we can’t give you the best rate, we’ll help you find it elsewhere.

    So to all of my supplier friends out there, let it be known; you have a lawful ally in the Wild West of lending.

    Louis Green is the founder and CEO of Supplier Success, LLC. He is a nationally known expert in the fields of procurement, supply chain management, and supplier diversity.

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