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There has been recent speculation that the market is frothy and online lenders to small business could be instigating the the next ‘subprime mortgage crisis‘.

The Business Insider article states that “online lending has exploded around the world since the financial crisis as traditional bank loans for both consumers and small businesses have dried up. The sector ranges from on-balance sheet lending to peer-to-peer marketplaces that fund loans. In the US, the most high-profile online small business lenders are Lending Club, Kabbage, and Funding Circle.”

Harvard Business School’s Karen Mills said that “The big problem is America doesn’t actually have anyone looking at the sector right now, even in a hands-off way, as there’s no clear body who would have oversight. Mills said: “There is no designated regulator. We have a spaghetti soup of regulators.”

Mills was the head of the US Small Business Administration from 2009 to 2013 and a member of President Obama’s cabinet, so she knows what’s going on.

Aaron Vermut, the CEO of US peer-to-peer consumer loans platform Prosper, said his wife has had direct experience of how confusing it can be for a small business to borrow. Vermut said the online small business lending sector was more like the “wild west,” adding “They can charge much higher rates over a short period of time so it’s a little bit like payday lending was for consumers.”

Editors Note: United Capital Source does not provide an online platform for small business funding. Our team of specialized small business loan experts will help guide you through how to apply for a small business loan over the telephone or in person. Old school!

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