The Consumer Financial Protection Bureau on Wednesday proposed a rule to increase the transparency of small business loans.
If finalized, the federal agency rule would require lenders to collect and report more data on small business credit applications, including demographics and pricing and the reasons lenders turn down a loan.
The rule would help regulators know how entrepreneurs fare when trying to access finance and what obstacles may prevent them from doing so, according to Dave Uejio, acting director of CFPB.
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The proposal applies to a wide range of credits, including term loans, lines of credit, credit cards and cash advances to merchants. The public has 90 days to submit comments on the proposal.
“After home ownership, small business ownership is the primary means through which families and communities create wealth,” Uejio said. “Too often, small business development is starved for lack of access to responsible credit at a fair price.”
The Covid-19 pandemic has exposed negative economic effects when policymakers do not have enough data to properly target credit, according to the CFPB. Many entrepreneurs have struggled to access Covid relief funds, such as those available through the Paycheck Protection Program, through some banks, the agency said.
The bureau also announced on Wednesday the creation of a web portal that small businesses can use to share stories with the regulator about credit applications.
Correction: The CFPB announced on Wednesday the creation of a web portal that small businesses can use to share stories with the regulator about credit applications. An earlier version distorted the day.