The Green Sheet Online Edition
December 22, 2025 • 25:12:02
Navigating regulation in the alternative finance space
Traditional banks operate under an extensive regulatory framework, reflecting the critical role they play in handling deposits, extending credit and maintaining financial stability. Given the volume of money they manage, and the systemic consequences if they fail, tight oversight is both expected and necessary. By contrast, much of the alternative finance industry, including nonbank lending and merchant cash advances, has historically operated with far less regulation. That is now changing. In recent years, federal and state authorities have introduced new rules aimed at increasing transparency, accountability and borrower protection.
While this shift may be long overdue, it also makes navigating the regulatory landscape increasingly complex for alternative finance providers and the businesses that rely on them. This article offers a brief guide to understanding why regulation in alternative finance is expanding and how both lenders and borrowers can adapt.
Why regulation of alternative finance is increasing
At a basic level, increased oversight makes sense. Alternative finance providers extend capital to small businesses and individuals, often under urgent circumstances, and those financial decisions can have lasting consequences. In many cases, these providers hold as much influence over a borrower's livelihood as a traditional bank would. Regulatory oversight helps ensure that power is exercised responsibly.
Growth is another factor. Alternative finance has expanded rapidly over the past decade, far outpacing lending growth at traditional banks. As the sector scales, the absence of consistent regulation becomes more problematic. Establishing guardrails now is far easier than attempting to rein in harmful practices after they become deeply entrenched.
Perhaps most importantly, regulation is intended to curb predatory lending. In lightly regulated environments, bad actors can proliferate, charging excessive fees, obscuring repayment terms or trapping borrowers in cycles of debt. Borrowers will always need access to capital, particularly small businesses with limited financing options.
But access shouldn't come at the cost of transparency or fairness. Much of the current regulatory push is aimed squarely at eliminating these abuses.
How lenders can stay compliant as rules evolve
One big challenge facing alternative finance providers is that regulation is still in flux. Federal rules remain under development, while states are rolling out their own requirements at different speeds and with different priorities. The result is a fragmented environment in which compliance obligations can vary significantly by jurisdiction. For lenders, an effective way to manage this complexity is to establish a dedicated compliance function. A compliance team is responsible not only for ensuring current requirements are met, but also for tracking regulatory developments and preparing the organization for upcoming changes. This proactive approach allows businesses to adapt early, rather than scrambling to comply under pressure.
Staying informed is equally important. Lenders should regularly follow industry-specific news, including trade publications, to stay aware of emerging trends and enforcement actions. Building relationships with legal counsel and, where appropriate, regulatory bodies can also help clarify expectations and reduce the risk of missteps.In addition, lenders benefit from having a formal change-management framework. Such a framework outlines how the organization responds to regulatory changes, assesses operational impact and implements new controls. This reduces surprises, minimizes disruption, and lowers the risk of costly fines or enforcement actions.
Finally, compliance cannot live in a silo. Regular training across an organization ensures that employees understand new rules and how they affect daily operations. Keeping staff informed helps prevent errors and reinforces a culture of accountability.
What borrowers should know
Borrowers generally face fewer direct regulatory obligations than lenders. Even so, they have a strong interest in paying attention to how the alternative finance market is evolving. Savvy borrowers should work with lenders that demonstrate regulatory compliance and transparency. Doing so can make the borrowing process smoother, reduce the likelihood of disputes, and ensure that, if issues arise, there are clear avenues for recourse through oversight authorities.
Staying informed about regulatory changes is no longer optional. The alternative finance industry is entering a period of significant transition, and regulation will play an increasingly central role in shaping how capital is provided and repaid in the years ahead.
Note: I used the following when researching this article: www.huschblackwell.com/newsandinsights/alternative-commercial-finance-update-adapting-to-regulatory-changes-in-the-alternative-finance-landscape. 
Chad Otar is CEO of Lending Valley Inc. For information about the company, please visit www.lendingvalley.com. To reach Chad, send an email to chad@lendingvalley.com.
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