Small Business Majority Applauds Introduction of Legislation that would Halt Predatory Loans to Small Businesses
New legislation would help rein in the spread of high-cost, predatory small business financing products by correcting lacking transparency standards
Washington, DC — Small Business Majority issued a statement applauding the introduction of the Small Business Lending Disclosure Act of 2021 today, authored by Senator Robert Menendez and Representative Nydia Velázquez, cosponsored by Representatives Maxine Waters, Ed Perlmutter, and Senators Sherrod Brown, Ben Cardin. 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. This legislation would ensure many safeguards already required in consumer lending would also apply to small business credit markets. The bill would bolster the role of the Consumer Financial Protection Bureau (CFPB) in policing small business lending and bring enhanced transparency to small commercial loans.
In addition to a statement from the organization, Small Business Majority released the stories of several small business owners in its network who were willing to share how they were victimized by predatory lenders.
“Predatory lending practices in the small business marketplace have unfortunately been a problem for years, but the COVID-19 pandemic exacerbated this problem for too many small businesses,” said John Arensmeyer, Founder and CEO of Small Business Majority. “Small business owners were enticed by unfair and unsustainable loans because they were desperate to do all that they could to keep their dreams alive while also dealing with mandatory lockdowns. They were bamboozled into paying sky-high interest rates as high as 350% APR. These rates are unsustainable, and this is why we are glad that Senator Menendez and Congresswoman Velázquez introduced the Small Business Lending Disclosure Act of 2021 to help protect small business borrowers from predatory loans carrying unfair terms and conditions. We hope that this bill will soon become law so that America's innovators will once again feel confident to pursue their ideas knowing that if they choose to expand their small business, legislation will be in place that will protect them from unethical lenders.”
“Seeing your dream come to fruition is unlike any feeling one can imagine,” said Johnathon Bush, owner of Not Just Cookies Bakery in Chicago. “All of your energy and time is put into building your ideas and then actually being able to implement them into something tangible gives you a sense of euphoria and empowers you to believe that you can do so much more. That’s how I felt when I opened my bakery in Chicago. I continued to feel exuberant about my business until it became clear that a steady stream of capital was a critical component to maintaining my business’s operations and growth. So, when I was presented with financing options from what I thought was a reputable broker, I was desperate to keep my dream alive and pursued an unattainable option. I signed on the dotted line feeling in a bind and unaware of the significant fees and high financing rate accompanying my loan. There was no transparency at all, and I felt misled and taken advantage of. I’m glad legislation is being introduced that will help others avoid the challenges that I incurred.”
“For more than nine years, I was able to own my own restaurant and thrive,” said Daysi Del Rosario Rivas Peralta, owner of Las Segovias Nicaraguan Restaurant in Huntington Park, Calif. “But when the COVID-19 pandemic hit, my revenue plummeted, and I was fighting to stay above water. Never in my career as a business owner have I experienced such debilitating setbacks. Because of desperation to keep my business going, language barriers and lack of technical assistance, I fell victim to fraudulent lenders. Most of these lenders didn’t provide adequate paperwork, clear information about the interest fees, and most said that I had no other choice but to accept the loan terms that were presented to me. Small businesses need to be protected by federal legislation that will give them a clearer picture of their loan terms and choices. I fully support a bill that will help small business owners avoid a debilitating debt cycle and help them to steer clear of predatory lenders.”
“I started my cleaning service with my wife in December 2019 with aspirations of expanding my business and building a legacy for my children," said Stephen Martin, owner of ACESA Cleaning Services, LLC in Buford, Ga. "Navigating starting a new business was daunting on its own. But coupling that with needing to pivot your business model to adapt to a public health crisis was truly overwhelming. Utilizing small federal emergency relief funding and other lending options, we could concentrate on buying the equipment we needed to expand our business. But we soon realized that the lender used a payday loan model that capitalized on sky-high interest rates. Unfair lending practices contributed to an environment of anxiety that is already embedded in small business communities across the country. I'm happy that Small Business Majority is advocating for legislation that would help to rein in the spread of predatory lending and impossible interest rates."
"When my father first started our manufacturing business more than 60 years ago, his goal was to provide high-quality metal and other material fastener components for a wide variety of industries," said Gail Glasser, President of Century Fasteners & Machine Co., Inc. in Niles, Ill. "He nor I ever imagined that instead of focusing on producing quality products and excellent customer service, we would have to worry about predatory lending practices and deceptive senior mortgage fraud. Small businesses don’t have the resources to dive into legal documents and identify unfair provisions. They are just looking for lenders who can loan them enough capital to keep their business afloat and be transparent about the repayment process. All small businesses should be protected when searching for opportunities to grow and expand. Our nation's small businesses deserve to have lending protections in place that would afford them the ability to avoid being victims and instead create a safe space for them to thrive."
Nearly 150 small business owners, business organizations, and other representatives of the small business community have signed a letter urging Congress to swiftly pass legislation protecting small business borrowers: https://smallbusinessmajority.org/sites/default/files/policy-docs/Protect-small-business-by-ensuring-fair-lending-practices.pdf
About Small Business Majority
Small Business Majority is a national small business organization that empowers America's diverse entrepreneurs to build a thriving and equitable economy. We engage our network of more than 85,000 small businesses and 1,500 business and community organizations to advocate for public policy solutions and deliver resources to entrepreneurs that promote equitable small business growth. Our deep connections with the small business community along with our scientific research enable us to educate the public about key issues impacting America’s entrepreneurs, with a special focus on advancing the smallest businesses and those facing systemic inequalities. Learn more about us on our website and follow us on Twitter, Facebook and Instagram.