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The Consumer Financial Protection Bureau on Wednesday proposed a rule to increase transparency in small business loans.
With federal regulation in place, lenders would need to collect and report more data on small business loan applications, including demographics, pricing data and the reasons why lenders refuse a loan.
According to Dave Uejio, acting director of the CFPB, the rule would help regulators learn how entrepreneurs are doing when trying to get access to finance and what obstacles might prevent them from doing so.
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The proposal applies to a wide range of loans, including term loans, lines of credit, credit cards, and cash advances from merchants. The public has 90 days to comment on the proposal.
"After homeownership, small business ownership is the most important way families and communities build wealth," said Uejio. "But too often, small business development is starved for lack of access to responsible, fair-priced credit."
The Covid-19 pandemic has shown negative economic effects when policy makers don't have enough data to properly target credit, according to CFPB. Many entrepreneurs have struggled to gain access to Covid aids through certain banks such as those available through the paycheck protection program, the agency said.
The office also announced on Monday the creation of a web portal through which small businesses can share stories with the regulator about applying for credit.