Small Business Majority Applauds the Introduction of Legislation to Better Protect Small Businesses Against Predatory Lenders
Lacking transparency standards have resulted in small businesses paying as high as 350% APR on small business financing
Washington, DC — Today, Small Business Majority, issued the following statement applauding the introduction of the Small Business Lending Disclosure and Broker Regulation Act of 2020 authored by House Small Business Committee Chairwoman Nydia Velázquez. The bill would amend the federal Truth in Lending Act (TILA) to extend the same protections for consumers to America’s small businesses. Currently, TILA requires that consumer creditors disclose critical financing information, including annual percentage rate (APR), in a clear and comparable format; however, no such standard exists to protect millions of small business owners. The Small Business Lending Disclosure and Broker Regulation Act would help to rein in the spread of high-cost, predatory small business financing products by correcting lacking transparency standards. In addition to a statement from the organization, Small Business Majority released the stories of several brave small business owners who were willing to share how they were victimized by predatory lenders.
“For years, predatory lenders have been able to hide in plain sight. They offer high-interest loans with impossible terms by disguising their rates with complicated financial jargon or altogether withholding the true terms of their loans to prospective borrowers. As a result, small businesses have been pushed to their breaking point, with many are stuck repaying loans with sky-high interest rates as high as 350% APR. This is why we have been advocating for more fairness and transparency in small business lending for years as part of the Responsible Business Lending Coalition.” said John Arensmeyer, Founder and CEO of Small Business Majority. “Now, America’s small businesses are facing an extraordinary set of challenges. After shelter-in-place orders caused business to dry up overnight, millions have been left in desperate need of cash to sustain their business and avoid indefinite closure. Falling victim to one of these predatory products in the midst of this crisis could sink millions of vulnerable small businesses. The introduction of the Small Business Lending Disclosure and Broker Regulation Act could not come at a more important time. We applaud Chairwoman Velázquez for her leadership, and we urge her colleagues in both chambers and on both sides of the aisle to not delay any further in passing this legislation into law. Small businesses are the backbone of the American economy and we cannot allow predatory lenders to crush America’s entrepreneurs in a desperate attempt to turn a quick buck.”
“I recently filed for bankruptcy. While down revenue from the coronavirus pandemic may have been the final straw, I was forced into this position because of the impact that high-interest merchant cash advances had on my business, said Johnathon Bush, owner of Not Just Cookies Bakery in Chicago, Illinois. “I started building my bakery in middle school. While my classmates were playing video games, I was busy pursuing my lifelong dream of becoming an entrepreneur. After growing my business to a storefront at the age of 20, I sought capital to reinvest in my bakery. However, I fell victim to the deceptive practices of these lenders, and despite my hard work and relatively successful business, I was completely broke. In normal times the impact of an MCA is difficult enough to manage, but when an unexpected crisis like the pandemic strikes, businesses like mine have nowhere left to turn. MCAs cripple entrepreneurship. It certainly crippled me, and I was never able to recover. There should be laws in place that require transparency to stop these sharks that circle small businesses waiting to prey on their finances and dreams.”
“When I started my business in 2013, I could not have predicted how quickly we would grow. I also could not predict the amount of money that we would need to continue to keep up with our growing business. After seeking financing through traditional lenders and being turned away because my business was ‘too young,’ I was left with no option but to turn to short-term, high-interest lending. Fortunately, our revenues were high enough that I could keep pace with the loans for a period of time, but eventually, the predatory nature of these companies caught up with us and nearly took me for everything that I had. As a result, I was forced to lay off 40% of my staff, close two office locations, and file for Chapter 11 bankruptcy,” said Sean Whalen, owner of Flexogenix in Cary, North Carolina. “Now, as the COVID-19 pandemic is wreaking havoc on our nation’s small businesses, I have been inundated with calls and text messages from predatory lenders claiming to be intermediaries for the SBA and offering bad loans disguised as deals to businesses in need. While I have not fallen for their tricks, I fear these companies are preying on small businesses in crisis, and this must be stopped. I hope that with this legislation their true colors will be exposed and no other business owner will be taken advantage of.”
“After being approached by a lender about consolidating outstanding debt, we decided to move forward with taking a loan. However, it quickly became apparent that we were being set up to fail,” said Julie Caricato, owner of FunTime in Surprise, Arizona. “Despite asking for clear loan terms, like APR, we never received that information, but rather were provided with extremely confusing answers. To make matters worse, the lender never consolidated our loans, and instead started immediately drawing large amounts from our bank account daily, while leaving us on the hook for other outstanding debt. It is a vicious cycle and one that is impossible to escape. This experience has caused us many sleepless nights and hurt our reputation with our business partners and vendors alike. Had we had full information upfront, we would have never taken this deal. No small business owner should be allowed to be intentionally duped by deceptive lending practices. I hope protections will be put in place to prevent other entrepreneurs from experiencing the threat to their business that we have.”
“It all started when we were not paid on time for a large contract. Like many other small business owners, being paid on time is critical for our cash flow needs. With work coming due for another client, we were left with no choice but to take a loan to float us in the interim. While this was not my first choice, I remember thinking ‘if I repay this quickly, I won’t be taking that big of a hit.’ But I could not have been more wrong,” said Deborah D., owner of a professional services company in Central Florida. “I quickly realized we were in trouble. One thing led to another and we were quickly on the hook for multiple MCAs that I later learned had astronomical APR rates ranging from 122% to 542%. To add insult to injury, we were conned into signing away our right to dispute this in court. I fully believe these lenders knew what they were doing, and that they set us up to fail. This should be a crime. No small business owner who has worked tirelessly to build their business should have their dreams destroyed by predatory lenders. Had I been armed with the full terms of the financing products I was presented with, there is no way that I would have agreed to take the loan in the first place.”
About Small Business Majority
Small Business Majority was founded and is run by small business owners to ensure America’s entrepreneurs are a key part of a thriving and inclusive economy. We actively engage our network of more than 65,000 small business owners in support of public policy solutions and deliver information and resources to entrepreneurs that promote small business growth. Our extensive scientific polling, focus groups and economic research help us educate and inform policymakers, the media and other stakeholders about key issues impacting small businesses and freelancers. Learn more about us on our website and follow us on Twitter, Facebook and Instagram.