SMART Box: Capital Comparison

Gary Fearnall Vice-chair of the Canadian Lenders Association talks about the SMART Box capital comparison standard and how this disclosure document provides transparency and clarity for SME borrowers.

Gary is ex-head of OnDeck Capital in Canada. He has worked in general management, sales leadership and business development for LinkedIn, Rogers Communications, The Globe and Mail and Cineplex Entertainment.

I want to start discussing innovative standards. OnDeck was one the first lenders to adopt SMART Box in the US which is a capital comparison tool to allow SME borrowers to compare lenders offering apples to apples. Tell us a little about the standard.
The SMART Box is a standard that was created in response to a need for common language and standardization in pricing disclosure in small business finance. Basically allowing borrowers to compare lender’s rate card apples-to-apples with other lenders.
What is so exciting about the SMART Box standard is that it allows for market transparency and clarity. This is a goal of the ILPA and the Canadian Lenders Association. That is why in August the two organizations partnered to promote innovative lending practices.
What is a SMART Box model disclosure?
SMART Box sets out disclosures that are not typically provided to small business owners by lenders in their loan documentation, such as the annual percentage rate (APR), the total cost of credit, and cents on the dollar.
The SMART Box is intended to serve as a SUPPLEMENTAL disclosure that presents key pricing information in a uniform fashion and helps to flag for the small business, in plain English, certain product features or policies.
So the SMART Box disclosure is not meant to replace a lender’s existing disclosures? It is just a universal way of presenting all the germane information necessary for the borrower to make an informed decision including APR, the total cost of credit, and cents on the dollar?
Yes, it includes clear and consistent pricing metrics, metric calculations, and metric explanations to help small businesses understand and assess the costs of their small business finance options.
How was the SMART Box originally developed?
The SMART Box standard was developed in consultation with key small business stakeholders, lending platforms such as OnDeck and Kabbage as well as policymakers.
Presently in the US there are 3 different versions of the SMART Box disclosure – for term loans, lines of credit, and merchant cash advances — while there are differences between the products we still use common pricing metrics and calculations, as well as standardized language.
The SMART Box disclosure has two main parts. The first part presents basic elements of the finance option under consideration, including the amount financed, the funds disbursed, the total repayment amount, the expected term, and the frequency of payback (as applicable).
The second part of the SMART Box presents four common pricing metrics: total cost of capital, APR (estimated for merchant cash advances), the average monthly payback, and the cents on the dollar cost of the financing option.
How can a lender find out more about SMART Box capital comparison tool is launched into the Canadian market?
The best resource would be the #CanadianLendersAssociation (#CLA). Contact our President, Gary Schwartz directly at canadianlenders@gmail,com and of course join the association and get involved.