New York’s financial watchdog wants small businesses to have enough information when they seek financing.
To that end, the New York Department of Financial Services (NYDFS) has adopted a new regulation governing disclosure agreements for commercial financing, the agency announced in a news release Wednesday (Feb. 1).
“Clear and easy-to-compare disclosures are paramount as entrepreneurs and small businesses evaluate financing,” said NYDFS Superintendent of Financial Services Adrienne A. Harris.
“The new regulation aims to improve fairness and transparency in the financing process, so that entrepreneurs and New York businesses can effectively evaluate and choose the best offer available to them.”
The regulation is based on New York’s Commercial Finance Disclosure Law (CFDL), which requires lenders offering financing of up to $2,500,000 to provide standardized disclosures to potential borrowers when extending loans.
The NYDFS said the regulation applies to a number of different types of financing: sales-based, close-ended and open-ended, factoring transaction, lease financing and general asset-based.
As PYMNTS noted recently, access to working capital is a crucial pain point for small- to medium-sized businesses (SMBs).
While larger companies typically enjoy long-standing relationships with their preferred financial institutions, SMBs often need extra help finding sources of capital. These cash flow concerns can lead to SMBs requesting more time to pay their suppliers, further harming their creditworthiness and ability to access traditional lines of capital.
“The pressure to find the right working capital solution is increasing, with one survey finding that big banks’ approval rate for business loans dipped to just below 15%, a 10-month low,” PYMNTS wrote in “Digital Banking Rises To Meet SMB Needs,” a collaboration with NCR.
“Alternative lending saw the biggest increase at nearly 2%, meaning small businesses are increasingly looking to FinTechs and digital-first offerings to deal with cost pressures.”
According to the report, nearly a quarter of SMBs are worried about finding affordable funding, creating an existential threat for many owners.
With traditional banks often not offering online account opening or lending for small businesses and the loan process requiring a week or two, anxious SMBs are increasingly turning to digital sources for financing.
PYMNTS research found that three out of four SMBs with working capital needs are the most likely to use digital-only banks as their primary financial institutions.
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