If you try to compare business loans from several lenders, it’s not always clear what your client will pay in interest and fees. This is because loan information is presented in different ways, so there hasn’t been a standardised way to compare business loans – until now.
What is SMART Box?
Smart Box (Straightforward Metrics Around Rate and Total Cost) is a tool to compare small business loans using several standardised metrics.
How does the SMART BoxTM work?
The SMART BoxTM is a one-page disclosure document with two parts. The top of the page includes the basic elements of the loan, including the Loan Amount, Disbursement Amount, Total Repayment Amount, the expected Loan Term, and Repayment Frequency.
The rest of the document shows six common loan pricing metrics: Total Cost of Credit, Average Monthly Payment, Total Interest Payment (TIP), Annual Percentage Rate (APR), Cents on the Dollar, and Factor Rate. It also shows whether new fees apply or if there’s a reduction in the Total Payment Amount if the loan is paid off early.
You can find an example of the SMART BoxTM document here, including a breakdown of each section.
Why SMART BoxTM?
In early 2018, the Australian Small Business and Family Enterprise Ombudsman’s Office reported on transparency and disclosure in the fintech sector. It found that 47% of fintechs believed SME lending needed to be more transparent. As a result, the Australian Finance Industry Association (AFIA) developed the Online Small Business Lenders Code Of Lending Practice.
In June 2018, six leading small business lending fintechs, including Moula, signed the Code. They agreed to meet small business legal and regulatory requirements, to implement a clear loan summary, and to contribute to a price comparison document by 31 December 2018.
Next Steps for Business Finance Brokers
To ensure you’re getting the best fintech loan for your clients:
- Make sure the lender complies with AFIA’s Code of Lending Practice.
- Ask for the SMART BoxTM.
- Carefully read the document to understand the total cost of each loan, including all fees, and make an accurate comparison.
- For more information, please contact you Moula BDM.