Advocates: Small Businesses Need Protection Against ‘Predatory’ Lenders

ANN ARBOR, MI (September 29, 2017) excerpt from INSIDE SOURCES - Anytime they take out a loan, American consumers enjoy protections embodied by a handful of decades-old laws designed to ensure that they know how much credit costs, and that they can comparison shop. But the American small business owner enjoys no such benefits, something a new coalition is trying to change.

As banks have reduced lending to small businesses in the wake of the 2008 financial crisis, other lenders have swarmed into the sector, creating what critics call a rising tide of abuse — this time aimed at struggling business owners — that resembles the subprime mortgage sector that led to bailouts and the worst recession since the Great Depression.

“Small business owners are human beings, and they get taken advantage of the way consumer human beings do. But they don’t have the kinds of protections in the law that consumers have,” said Michael Barr, a law professor at the University of Michigan and a former assistant secretary of the Treasury.

Read the entire article here. 

New Rules Would Target Discrimination in Small-Business Lending

WASHINGTON DC (September 28, 2017) excerpt from KQED NEWS - Banks could be forced to collect and report data on the small-business loans they approve and reject — including the ethnicity and gender of the business owners — under new rules being crafted by a federal consumer protection agency. Economists and regulators say the data could help identify whether lenders discriminate against minority- or women-owned businesses.

The new rules would aim to “facilitate enforcement of fair lending laws” as directed by Section 1071 of the Dodd-Frank Act. Congress approved the major financial reform legislation in direct response to the last financial crisis.

Mortgage lenders already collect similar data, which help to “shed light on lending patterns that could be discriminatory,” according to the Consumer Financial Protection Bureau, the agency tasked with implementing the reporting changes on small-business lending.

To read the entire article, click here.

Pricey 'Fintech' Lenders Put the Squeeze on Cash-Strapped Small Businesses

LOS ANGELES, CA (September 27, 2017) excerpt via The Los Angeles Times -  Mark Newman needed some fast cash last October to keep his small Studio City wine-importing business afloat. He went to his main bank but was rejected for a loan because of his relatively low sales.

So Newman, 61, turned instead to an online lending company called OnDeck. After submitting a handful of bank statements, he was quickly approved for a $65,000 loan, which allowed Newman to cover his wine shipments and keep his business running.

All good, right? Wrong, says Newman.

“These loans are predatory by nature,” he told me. Think payday loans for small businesses, he said, with interest rates well over 30%.

OnDeck Capital is representative of a new breed of online lenders known as financial-technology firms, or “fintech,” that have found a niche making money available to small businesses quickly and with minimal hassle.

Fairness in lending means clear and straightforward disclosure of terms and conditions. On that score, OnDeck seems to come up short.

For example, the company’s website boasts that term loans of up to $500,000 can be obtained with annual interest rates as low as 5.99%. Newman said that when he contacted OnDeck, he was hoping to get a loan at such a rate. But it didn’t work out that way.

“They were crafty about it,” he recalled. “They said they couldn’t offer me the lower interest rate, but they’d see what they could do for me.”

What he got was a 12-month, $65,000 loan, plus nearly $17,500 in interest and an origination fee of $1,625. That translated to an annual percentage rate of 55%.

In fact, OnDeck told me its average annual interest rate for term loans, excluding fees, is 38%.

To read the rest of the article, click here. 

Small Businesses Expand, Invest Despite Gridlock in Washington

WASHINGTON DC (September 26, 2017) excerpt via USA TODAY -  Small business owners are tired of sitting on their hands while Washington dithers.

Despite lingering uncertainty over tax and health care policy, U.S. entrepreneurs are moving ahead with investment and expansion plans that could juice economic growth.

Thirty-two percent of small businesses are planning capital outlays in the next three to six months, the strongest reading since 2006, according to the National Federation of Independent Business’s August survey. And 27% say the next three months is a “good time to expand,” the largest share in 13 years.

A September survey of economists by the National Association for Business Economics, out Monday, predicts that business investment overall -- by small and larger companies -- will grow 4.4% this year, up from their 3% median estimate in December. Businesses that expand, buy new equipment or build new structures typically hire workers to operate the machines or occupy buildings, while the factories that make the products generally need to staff up as well.

To read the entire article, click here. 

Latino-Owned Small Businesses Struggle to Grow Their Companies

PASADENA, CA (September 25, 2017) - More than 40 percent of the nearly 400,000 Latino-owned small businesses in the greater Los Angeles area have been denied capital because of low credit scores and other perceived risks, a new study reveals.

The report, “Fueling California’s Economic Growth: A Study on Latino Small Business and Capital Access” by the Small Business Finance Fund, defines the L.A. region to include Los Angeles, Long Beach and Santa Ana. But the statistics are reflective of the entire state.

Access to capital is important for all entrepreneurs, whether the funding is needed for a startup venture or to grow an existing business.

Small business lending by traditional financial institutions and household wealth contracted significantly in the wake of the Great Recession and access to capital remains problematic for all entrepreneurs, despite the economic recovery. But evidence shows that Latino small business owners are denied credit more often, charged higher interest rates and discouraged from applying for loans more often than their white counterparts, according to the report. That’s primarily because they tend to have lower credit scores, limited collateral and less startup capital.

And it has a ripple effect.

The lack of access to mainstream financial services and bank financing creates a financial disconnect, the report said, and it can be exacerbated by a lack of familiarity with the legal system, tax laws, local codes and standard accounting practices. 

To read the entire article, click here.

Collaboration as Competitive Advantage

WASHINGTON DC (September 22, 2017) — As noted by the Washington Post, “Bankers are worried, and rightly so. In a letter to shareholders of JP Morgan Chase, America’s largest bank, chief executive Jamie Dimon warned investors that “Silicon Valley is coming.” Goldman Sachs, according to Inc., “estimates that upstarts could steal up to $4.7 trillion in annual revenue” from incumbent banks, a potential payday that is driving venture investors to pour nearly $25 billion annually into the sector.”

• Click here to read the Washington Post article.

According to Accenture, “over the past five years, global financial technology (fintech) financing has grown rapidly, but the share of fintech investment directed at companies looking to compete against the financial services sector has remained relatively stable at 62 percent.”

In New York City, however, Accenture notes that explosive FinTech growth is “coinciding with a dramatic shift toward collaboration. As a result, NYC is quickly becoming the global center of a new kind of fintech innovation.”

• Click here to read the Accenture article.

Three Ways to Keep Your Small Business Running After A Natural Disaster

HOUSTON, TX (September 21, 2017) — Natural disasters can strike at any time, and have a devastating impact on communities and small businesses. For owners, government organizations like the Small Business Administration (SBA) have been offering disaster relief since before World War II, and continue to do so today with Hurricanes Harvey and Irma. According to MarketWatch, as of last week, the SBA had received 2,117 loan applications from residents and businesses affected by Hurricane Harvey.

Unfortunately, not all small businesses are able to recover after a natural disaster, and 75 percent of small businesses don’t have a disaster plan in place. According to the Federal Emergency Management Agency (FEMA), 40 percent don’t reopen after a natural disaster due to the astronomical cost of repairing damages. Even if the small business does reopen, 52 percent of owners say it would take at least three months to recover.

To read the entire article, click here.

Small Business Owners Are Retiring, And Millennials May Not Fill The Gap On America's Main Street

WORCESTER, MA (September 20, 2018) — A local hardware store in Worcester, Massachusetts recently announced that it was going out of business. This wouldn’t be big news, except Elwood Adams Hardware has been around since the Articles of Confederation. Dating back to 1782, it is (or was) one of the oldest hardware stores in the United States—continually open for 235 years under various owners.

According to the US Small Business Administration, small businesses account for 48% of national employment in the United States. In number, they represent 99.7% of all businesses in the country. Small business owners, some with staffs of 500 employees, others toiling alone in a home office, and plenty more in-between, are the stewards of an enormous segment of the American economy.

In the demise of Elwood Adams Hardware, we can see two forces at work that may figure to change the landscape of American small businesses and entrepreneurship. There is the continuing disruptive dominance of the Internet in the commercial sphere. And, perhaps less well-observed, there are the swelling ranks of retired-or-retiring Baby Boomers, and the emergence of the Millennials to replace them as the brunt of the workforce in the United States.

To read the entire article, click here.

Banks Loan Less to Detroit Businesses in Neighborhoods with More Minorities

DETROIT, MI (September 19, 2017) - A study looking at business loans in metro Detroit confirmed the adage that banks lend money to people who don't need it.

It also found a pattern of lending that could be a result of discrimination.  

The 42-page report,  released today by the Woodstock Institute in Chicago, found wide disparities in lending in Detroit and nationwide when considering income and race.

"If you are not lending in neighborhoods, entrepreneurs there can't create jobs," the study's author, Spencer Cowan, said in a conference call. "They can't sustain businesses. They can't provide needed services for local residents. The neighborhood declines."

To read the entire article, click here.

5 Ways Small Businesses Can Avoid Predatory Loans

HOUSTON, TX (September 18, 2017) — "Imagine starting your new business and going online to take out a loan. You find what you think is an attractive yearly rate of 9 percent. You think you are set until — after you sign — you are shocked to realize it’s 9 percent per month.

These kinds of soul-crushing predatory loans can put you out of business, sometimes before you’ve even started. Millennials, in particular, can be susceptible, as they are most likely to go online to search for a loan.

If you Google “small business loans,” ads for several FinTech lenders pop up even before the U.S. Small Business Administration’s (SBA) site. One lender offers loans from $15,000 up to $2 million, while another seeks customers by promising they can “get funded as fast as 24 hours.”

Some lenders condition their loans on switching to their merchant card-processing service, then add excessive fees to every transaction and subtract their payment from every credit card sale, eroding profits. Others charge interest rates north of 50 percent annually.

Another red flag is the prepayment terms. Often, these loans have a prepayment penalty equal to the sum of the remaining payments. So even if you pay it off early, you pay all of the interest and fees that would have been paid off if you made the scheduled payments."

To read the entire article, click here.

Denied a Small Business Loan? Here’s How You Quickly Rebuild Credit

NEW YORK, NY (September 15, 2017) — For small business owners and entrepreneurs, loans are often essential for growth. But a bad credit score may prevent you from getting a loan you need. If you’re in this spot, then you need to start rebuilding your credit fast!

Bad Credit = Big Problem. Despite this country’s affinity for buying on credit, many Americans still don’t fully grasp what their credit score is, how it’s calculated, or how it can affect their ability to borrow. This, of course, means they’re vulnerable and prone to making poor decisions.

To read the entire article, click here.

Is AI a Threat to Fair Lending?

NEW YORK, NY (September 14, 2017) — There are all sorts of legal and technical issues about how lending rules apply to the new breed of online lenders, but here’s a more fundamental one: How sure are they their automated technology is colorblind?

Even if a company has the best intentions of following fair-lending principles, it’s debatable whether the artificial intelligence engines that online lenders typically use —and that banks are just starting to deploy — are capable of making credit decisions without inadvertently lending in affluent sections and not in minority neighborhoods."

To read the entire article, read here.

Small Business Head Sees Businesses Held Back By Lack of Loans, Workers

NEW YORK, NY (September 13, 2017) — Six months into her tenure as head of the Small Business Administration, Linda McMahon sees a split among small business owners — they are increasingly optimistic, she says, but many are held back by their inability to get loans or find the right workers for jobs that are staying open.

"Entrepreneurs are willing again to be bigger risk-takers than they have been over the past eight years," McMahon said in a phone interview this week with The Associated Press. But, she said, there are also lingering effects of the Great Recession, and "I think there is still a caution."

To read the entire article, click here.

‘Fintech’ Loans: A Sometimes Costly Lifeline for Small Business

RICHMOND, CA (September 12, 2017) — Che Al-Barri remembers feeling like he was drowning in debt last year. He had taken out a $70,000 loan for his small cleaning company, but was struggling to repay it.

The lender, a financial technology — or fintech — company, automatically collected $331 from his bank account daily, Monday through Friday. The frequent hits depleted his income and took a toll on his business, he said.

“If you get hit every single day you have no time to breathe,” said Al-Barri, 45, who grew up in Richmond. “It put me up against the wall. There was many times I pulled the covers over my head and just laid there like, ‘Oh my gosh, what am I going to do?'”

To read the entire article, click here.

Fintech Helps Banks Disburse More Loans

NEW YORK, NY (September 4, 2017) — Two years of fin tech driven reach has helped banks grow about 15 to 20 per cent indicating that banks’ dependence on `feet-on-street’ to campaign for loans may recede in a few years. Bankers said nearly a third of their customers below 30 years were on-boarded through the digital platform. 

Banks are using FinTech players to qualify good customers faster and give on the fly credit. Significant reduction in time used for taking better credit decisions have led to higher conversion in disbursal of loans.

To read the entire article, click here.

Lending as a Service (LaaS) and Why it Matters

NEW YORK, NY (August 23, 2017) — Traditional financial services providers have tightened their lending requirements, leaving many small business owners with few channels to uncover the capital they need.

The financial crisis of 2008 caused global shockwaves, wrecking businesses and wiping away thousands of dollars’ worth of individuals’ savings. World markets are still recovering to this day, and governments have enacted strong reforms to prevent a repeat occurrence. These new, stricter regulations have deeply changed the financial world. Along with shifts in consumer preferences, banks and lenders are now faced with a vastly different financing landscape.

To read the entire article, click here.

Startups Still Struggle Finding Funds (Fueling Online Lending’s Growth)

NEW YORK, NY (August 10, 2017) — While startups and small business are often (rightly) hailed as the engines that power growth in the American economy, when it comes time to secure funds — the situation gets tricky. Stated simply, ten years out of the financial crisis and small business lending remains a chronically sluggish and difficult to work in environment.

According to a report by the country’s 12 regional Federal Reserve banks, over half of all startups report difficulty in securing loans and 81 percent report having had to dip into their personal funds to cover gaps in their corporate cash flow. Startups, as defined by the new report, are firms that are less than two years old and employing less than 500 workers.

“Given the importance of startups for the economy, the question of startup capital is of central importance,” according to the 2016 Small Business Credit Survey Report on Startup Firms. “While funding is the lifeblood of every company, capital is especially critical for startups. To reach scale, startups need to be able to secure expansion capital.

To read the entire article, click here.

Online Lending Has Reached a Tipping Point

NEW YORK, NY (May 1, 2017) - Online lenders have been facing an uphill battle recently as investors question whether they are truly getting the loan transparency they need to confidently invest in this young industry. Investors, credit providers and ratings agencies are worried about loan data integrity as well as collateral and ownership rights behind the loans.

To read the entire article, click here.

When Does a Lender Become a Loan Shark?

NEW YORK, NY (April 5, 2017) - At what point does a lender (good) become a loan shark (bad)? The question has exercised philosophers—and unhappy borrowers—from antiquity to the present.

To read the entire article, click here. 

Small Business Lending: Finding, Fitting, Financing

NEW YORK, NY (January 5, 2017) - Access to capital is consistently raised as a pressure point for small businesses. However, simply saying it’s challenging to obtain capital isn’t all that helpful without getting to the crux of the issue. We recently gathered a group of Goldman Sachs 10,000 Small Businesses alumni to probe more deeply into their experiences getting capital. One result of our discussion was a breakdown of their capital search into a series of definable steps:

• Finding - identifying the available sources of capital

• Fitting - deciding which source is the best fit for you and your business

• Financing - determining what are the most important components of the deal

To read the entire article, click here.