SAN DIEGO, CA --- Small business owners met with federal regulators in San Diego today to explain the significant financing challenges they routinely face in starting and running their businesses. The meeting included representatives from the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), Federal Reserve, and the Small Business Administration (SBA).
Small businesses are the backbone of the economy, creating jobs and local investments. But many small business owners struggle to get traditional bank loans, putting their businesses in peril and forcing them to turn to the unregulated and often predatory online lenders that proliferated in the last decade. The problem is even more pronounced for businesses in low- and moderate-income neighborhoods and in communities of color.
Six members of the Main Street Alliance of San Diego spoke during a series of panels throughout the day, talking about the need for improved government regulation and providing a snapshot into the practical realities of financing a small business.
Today’s meeting in San Diego follows a May 10th CFPB field hearing in Los Angeles that brought together Director Richard Cordray, small business owners, and other industry representatives. During that hearing, the CFPB announced the launch of a Request for Information into small business lending.
The California Reinvestment Coalition, Woodstock Institute, CDC Small Business Finance, and other San Diego small business owners joined the Main Street Alliance during today’s meeting.
Statements from today’s participants:
“Financial regulations and protections don’t stand in the way of small business success,” said Amanda Ballantyne, National Director of Main Street Alliance. “On the contrary - better regulation can substantially improve the small business lending landscape, especially for women business owners and business owners of color. Enforcing rules in Dodd-Frank that require lenders to report small business loan data is one step to leveling the playing field and boosting small business growth.”
“Four months after I opened my business, the constant line out the door made it clear we needed to grow immediately,” said Brad Keiller, member of Main Street Alliance and founder and co-owner of Nomad Donuts in San Diego. “But the banks, who wouldn’t finance my start-up loan, also wouldn’t give me a loan sufficient enough to expand. In order to buy more equipment, I turned to an online lender that took 10% interest and another 12% of all credit card sales. If you’re smart, you don’t take those types of loans. And if you’re stuck without another option, you borrow more than you need when you’re forced to take out those types of loans. That buffer helps offset the payables while you hustle and pray you can float the loan long enough to pay it off.”
“Small business owners actually care a lot about surviving, and we do whatever we have to do for our businesses,” Brian Haghighi, member of Main Street Alliance and co-owner (with his twin brother Alan) of Fruit Craft - Fermentery & Distillery in San Diego. “For years, we weren’t able to get a traditional loan, so we had to do the unthinkable - we took out a merchant cash advance (MCA) in order to expand. We don’t regret it, we didn’t have another option. But now we’re paying back $1,000 daily to the MCA. If we had received a fair and affordable loan, we could hire more people. The business could be so much further along.”
"I spent a great deal of time and energy trying to get a loan to open my second location," explains Maria Sauceda, owner of Happy Times Child Development Center in San Diego. "But all the banks told me no because even though I had been in business for seven years, they considered a second location to be a new start-up. Luckily for me, a friend recommended a local Community Development Financial Institutions Fund which was willing to loan me $50,000, and I'm proud to report we now have 6 employees at our business. I'm hopeful regulators can do something about this problem because without reasonable loan options, it’s very hard for people to start or grow their businesses.”
“It was important to hear at the roundtable today in San Diego from small business owners about the barriers to credit that they face. I’m glad that the regulators heard those stories and learned about our research documenting the disparities in access to credit faced by entrepreneurs of color and those in low- and moderate-income areas across the country,” said Dory Rand, President of Woodstock Institute in Chicago.
"The Consumer Financial Protection Bureau releasing a Request for Information about the 1071 small business lending data is critical," explains Robert Villarreal, Executive Vice President at CDC Small Business Finance. "The existing data we have on small business loans and the demographics of borrowers suggests troubling lending disparities. As the CFPB increases transparency into small business lending, there will also be greater accountability to ensure that all qualified small business owners have access to safe and sustainable loan options to start and grow their businesses- regardless of the color of their skin."
"We appreciate everyone who came today, including representatives from the FDIC, OCC, CFPB, Federal Reserve, and SBA; the CRC members who work directly with and lend to small businesses here in San Diego; and the small business owners who shared their experiences, comments Kevin Stein, deputy director of the California Reinvestment Coalition. "However, the stories we heard about so-called 'alternative lenders,' including merchant cash advances, are troubling and suggest a pressing need for better regulation and oversight of high-cost lenders whose products can be very dangerous for small business owners.”