Dear Consumer Financial Protection Bureau,
Small business owners often have difficulty accessing traditional bank loans. Regularly, small business owners receive solicitations from risky, unregulated online lenders with extortionist rates and terms. The CFPB data collection under Section 1071 of Dodd-Frank is critical to making sure small business owners like me have a fair shot at succeeding.
Small businesses play a crucial role in local and national economic growth, and are important engines of job creation in our communities. Despite this important role we play, we face challenges accessing capital to start and expand our businesses:
Since the financial crisis, small business bank loans have decreased by 20 percent, while loans to larger businesses have increased over the same period. Nearly half of all small business owners experience problems accessing credit.
The situation is worse for women- and minority-owned businesses.
Businesses located in minority neighborhoods are less than half as likely to receive loans compared to businesses in white neighborhoods.
Only 28 percent of minority borrowers are approved for loans, compared to 67 percent of non-minority borrowers.
30 percent of Black business owners report receiving less in loans than requested, compared to 12 percent of White business owners.
Small business owners are forced to turn to predatory lenders for needed financial capital. Predatory lenders provide loans with high interest rates, onerous terms, and poor customer service.
Fintech loans (loans given out through non-bank financial technology, i.e. mobile payments, money transfers, loan fundraising, etc.) have effective interest rates that range from 100 percent to 367 percent, and include “junk” fees averaging $795 per loan.
The average fintech borrower pays an APR of 94 percent, with rates reaching as high as 358 percent. Hispanic borrowers face an average monthly payment of more than 400 percent of take home pay.
In order to ensure equity in capital access, no lending institution should be exempt from the data collection requirement, including commercial banks, community banks, credit unions, online banks, and non-bank lenders like fintech companies and merchant cash advances.
Robust data collection by banks and other lending institutions is critical to understanding the prevalence and extent of redlining. Financial institutions that are not complying with fair lending laws must be held accountable to the fullest extent of law.
I urge decisive and prompt implementation of Section 1071, so that small business owners have a fair shot at securing the capital we need to succeed.
We come together in the halls of power and across the media as small business owners because we need to grab our good name back from corporations and lobbyists. On issue after issue, we stand for an alternative economic point of view: it’s about community, customer demand, social justice and sustainable business models. While we come together to advocate we are also exploring ways to provide concrete, hands-on assistance to our members.
Our Washington state affiliate has launched a collaboration with the Oakland-based Beneficial State Foundation to tackle the small business issue #1: access to credit.
Over sixty Spokane mom-n-pops and their community allies and customers came out to connect and share ideas about alternatives to big banks and Wall Street who extract wealth from our communities and rig the marketplace against small businesses. Owners of retail stores, restaurants, small manufacturers, dry cleaners, mechanics, IT and health professionals, consultants, artists and everyone in between joined in to brainstorm ways to bring together values-driven lending institutions and good providers of financial know-how assistance and Main Street Alliance members.
Kat Taylor, CEO and Founder of Oakland-based Beneficial State Bank and Foundation, as well as the Bank and Foundation officers, visited Spokane for the occasion and got to hear a range of entrepreneurial experiences with financial institutions. The picture, as you may suspect, is not that pretty, especially for women owners, people of color, immigrants and first-generation entrepreneurs. When it comes to being treated well by the banking industry, every small business has a horror story.
Our goal is to produce a valuable and vetted portal of values-driven lenders and service providers across Washington and beyond and to work actively on connecting them with small businesses. When we strengthen the business operations of our own members, we also strengthen our local economies and our ability to have impact on local and statewide policy debates.
We envision a banking industry that is fair to the person with the least bargaining power, provides access to financial services for all our communities, particularly the under-served. We envision lending institutions that promote the stability of the financial system and contribute to the sustainability of our environmental commons.
In other words, we believe that money should serve people, not the other way around. We call our new project Building Main Street. Let’s build strong local economies, improve quality of life for each of us, and make widespread gains in social equity and environmental renewal. Main Street, not Wall Street.
Here is a little glimpse from Spokane. Stay in touch with our Washington affiliate and let them know what you think.
On June16, the House Small Business Committee Subcommittee on Economic Growth, Capital Access and Taxes held a hearing entitled The Dodd-Frank Act: Impact on Small Business Lending. The Main Street Alliance's Bill Daley was invited to testify on behalf of businesses in our network. See the clip of Bill's testimony:
The country observed National Small Business Week in May (see the Presidential Proclamation). The Main Street Alliance marked the occasion by releasing its “State of the Small Business Nation – 2011.” This white paper includes a “Small Business Top Ten List” of concrete policy opportunities to level the playing field for small businesses and help them create jobs.
While pundits and politicians like to label policies “pro-business” or “anti-business,” as if there were one unified business interest, the reality is that policies that make winners out of some businesses make losers out of others. As Bruce Josten, the chief lobbyist of the U.S. Chamber of Commerce, put it, “You’re never going to have one hundred percent unanimity. Never. There is inherent tension… I laugh every day when someone calls and asks what does the business community think.” (1)
While Mr. Josten pointed to tensions between oil and gas companies, wholesalers and retailers, investment banks and retail banks – all big corporate players – his point applies even more so to the dynamics between big business and small business. While pundits and politicians like to lump all business interests together, the truth is that policies that benefit large corporate players very often tilt the playing field against small businesses.
In a cover letter to President Obama, senior administration officials, and congressional leaders on May 18, Main Street Alliance business leaders wrote:
Our members come from states across the country and a wide range of sectors, but we are united by a common set of values – small business values. We believe in what we do, we stand by our products and services, and we want people in government and corporate leadership who do the same. We stand for fair play and a level playing field. We stand for having each other’s backs. We believe America’s future prosperity depends on everyone contributing their fair share.
These small business values are what guide our business decisions and our commitment to advancing policies that fulfill the promise of an economy that works for all of us – small businesses, our employees, and the communities that sustain us.
(1) James Verini, “Show Him the Money,” Washington Monthly, July/August 2010, http://www.washingtonmonthly.com/features/2010/1007.verini.html