Browsing to Borrow: “Mom & Pop” Small Business Perspectives on Online Lenders

The Federal Reserve Board and the Federal Reserve Bank of Cleveland partnered on a study of small business owners’ perceptions of online lending and their understanding and interpretation of the information that online lenders use to describe their credit products. For this study, Federal Reserve researchers conducted online focus groups with 42 small business owners from across the United States.

The study finds that most of the focus group participants were familiar with online lenders, and although some had positive views, more participants had negative impressions of the industry. While browsing the websites of online lenders, participants reacted favorably to those with detailed product information and were skeptical of those that withheld product details. When presented with sample online products, participants generally found the descriptions difficult to understand or lacking in detail about costs and features.

Small business owners agreed that there is a need for clear disclosure of product costs and terms. Findings of the study suggest that improved disclosures could benefit both borrowers and lenders: Clear disclosures could enable borrowers to better evaluate products suitable for their businesses and help lenders engender trust and grow their customer base.

This study expands on the findings from a 2015 Cleveland Fed report, Alternative Lending through the Eyes of “Mom & Pop” Small-Business Owners: Findings from Online Focus Groups.