Market Overview

Study Shows Disclosure Proposals are Misleading to Merchants


WASHINGTON, Oct. 15, 2020 /PRNewswire/ -- The Small Business Finance Association (SFBA) today released a study conducted by Kingsley-Kleimann Group that tested commercial finance disclosures with small business owners. Participants tested in New York and California indicated APR is not fully understood and misleads merchants about the real cost of commercial finance products. Currently, New York and California are considering laws that would require new commercial finance disclosures that would include an APR and additional new terms that participants in the study found confusing.

Participants tested in New York and California indicated APR is not fully understood.

"This study confirms that even sophisticated small business borrowers are confused by APR and other needlessly complicated disclosures," said Steve Denis, Executive Director of SBFA. "Legislators shouldn't consider themselves a focus group and instead should look to actual small business owners before making decisions. We would ask that New York and California policymakers and interest groups consider what will be most meaningful to small business owners, putting first and foremost disclosures that allow them to compare terms accurately and simply."

The study found that the merchants often failed to differentiate an APR with an interest rate and that they were distracted from other key terms, including the actual cost of the financing. It further concludes that participants tested poorly when more information and metrics were disclosed to them. The majority of participants were confused by APR in relation to cost and most often indicated that the total cost of the financing was more helpful in comparing products.

"Over the past 20 years, we have both developed and tested numerous disclosures. The conclusions, in this case, are straightforward. Most participants feel a sense of false security when armed with more information than they need to make a decision," said Barbara Kingsley, founding partner of Kingsley-Kleimann Group. "This study shows, as others have, that participants performed poorly using disclosures with more information and APRs in cognitive questioning. Using complex disclosures, they were less able to identify the payment frequency, the payment amount, or how APR is used. They performed better with simpler disclosure options and perceived them as easier to understand." 

The findings follow efforts in New York and California to apply, among other disclosures, APR to small business financing products. A result of the Truth in Lending Act passed in 1968, APR was designed as a consumer disclosure and has never been applied to commercial finance. To date, New York and California have not tested proposed disclosures with small business owners.

"Greater transparency for small business owners is a goal we support, but transparency that is overwhelming and not understood isn't transparency at all," added Denis. "Technology has changed the way small businesses shop for financing and legislation should pursue equally innovative approaches to disclosure. Yet we're settling for half-century-old ideas that don't — and were never intended to — serve small businesses. We can do better."

The report is available for download at

The Small Business Finance Association (SBFA) is a not-for-profit 501(c)6 trade association representing organizations that provide alternative financing solutions to small businesses.

Kingsley Kleimann Research is a national leader in the development of award-winning plain language forms, disclosures, consumer tools, and education materials to help consumer understand complex topics and make informed decisions.

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SOURCE Small Business Finance Association

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