Photo Courtesy: Small Business Majority
Being a business owner is not for the weak at heart. It takes a lot of blood, sweat, and tears to juggle all of the balls and to keep them afloat in the air. Business owners have a lot of pressure on them because they are responsible for a lot of people from the community and their employees or subcontractors to their families.
Despite the fact that small businesses are the catalyst for job creation, economic growth and stimulating the community, accessing capital for their business is still a thorn in the side for many, primarily within the diverse communities. The Access to Capital: The Key to Small Business Growth and Economic Development panelist was candid about the culture of the financial institution practices on lending. With their gut-wrenching advice they were able to provide us the tools and resources that we would need to stay in the game.
As we all know the lending practices today has adversely affected millions of underrepresented and disadvantaged businesses for centuries from home to business ownership. When a small business owner, particularly from the diverse community, applies for a loan there are continual biases and prejudices that the system possess. You can provide every documentation required, have collateral and still can run up against a loan denial.
There is a great deal of discrimination in lending,” David Newvill, Director of Federal Policy, Prosperity Now. One of the business owners that attended the Small Business Policy Forum was transparent about his lending experience. Here is an overview of what he displayed to us:
He has been in business for over 10 years. He needed funding to help take his business to the next level. He provided all of the required documentation, however, he experienced a glitch. The glitch was that according to Sage Stream Reporting, which was used for credit reporting by the financial institution that he was working with, his profile came back not creditworthy. The irony was that he stated that Sage Stream Reporting had the wrong person and that their findings of his creditworthiness were incorrect. These errors that were reported by Sage Stream Reporting is what caused his application to be denied, despite the fact that he tried everything to correct the mistakes that Sage Stream Reporting had made.
As you can see outside of the three big credit reporting agencies: TransUnion, Equifax or Experian there are other companies coming online that is tremendously affecting business lending. Everyone in attendance including the panel of experts wanted to know exactly who is Sage Stream Reporting. The irony is that no one knew or had ever hear of this company, including the panelist. Isn’t that interesting?!
Do you know who your lenders use to access information about you? “Only 53% of those that apply for loans actually receive the requested amount,” Joyce Klein, Director of Microenterprise Fund for Innovation, Effectiveness, Learning, and Dissemination (FIELD), Aspen Institute. As a small business owner, my question is why only 53%?
There is truly something wrong here. “Be aware of merchant cash advance services,” Joyce Klein. What is she talking about?
Just like Sage Stream Reporting has entered the marketplace so has unregulated sharks pertaining to lending. These sharks are ready to offer you an unsecured loan but at a higher Annual Percentage Rate (APR). In order to obtain access to capital to help grow your business, these lenders require access to your checking account.
The purpose for this access is so that they can debit your account for daily payments and if you decide to pay off the loan early, there is an early prepayment penalty attached. Don’t wait until you need the money for your business growth locate a lender now and get your ducks in a row. If you feel pushed up against a wall you are more than likely to get a loan at any costs.
For the larger institutes that are regulated like your major bank, these financial institutions do not see the value in lending to you. As they see it, the costs to underwrite a loan is the same, whether the dollar amount requested is $2,500, 25,000, $250,000 or $2.5 million dollars. The bottom line is their bottom line!
Manny Hidalgo, Director of the Office of Economic Opportunity, U.S. Small Business Administration’s (SBA) Office of Capital Access indicated that SBA has been fully aware of the biases that minorities are receiving within the banking community so they are creating more programs that are designed to help offset some of the costs and risks that big banks may face in lending to diverse communities. “SBA lenders look at other things outside of your FICO Score. We also have a Lending Match Program that is designed to match lenders with business owners,’ says Manny.
“In today’s marketplace business owners should be aware of the Small Business Borrower’s Bill of Rights,” Jessica Milano, Former Deputy Assistant Secretary for Small Business, Community Development, and Housing Policy, U.S. Department of Treasury, which is designed to operate using better lending practices. There are six key initiatives that these Rights operate under:
- The Right to Transparent Pricing and Terms
- The Right to Non-Abusive Products
- The Right to Responsible Underwriting
- The Right to Fair Treatment from Brokers
- The Right to Inclusive Credit Access
- The Right to Fair Credit Practices
I have a suggestion, let’s go back to basics. How does that look? How would it work?
Going back to basics is looking at lending institutions with a vested interest in your business success. Take your money out of the major banks and begin looking at partnering with your local, community bank. Another back to basic move would be to look into crowdfunding programs like KIVA. Or borrow from family and friends and if they need an incentive consider revenue sharing or providing them a share in the business.
Lauren Stebbins, Vice President of Small Business Initiatives, Opportunity Finance Network provided several other back to basic resources that can be beneficial to business owners that are seeking the necessary technical assistance and programs to help finance their needs:
- Opportunity Finance Network
- Democracy Collaborative
- Community Development Financial Institution (CDFI)
Remember, as a small business owner you must continue to make your voice heard and to stay up to date on small business issues by reaching out to these organizations and your Senators now:
Once again I thank you for the opportunity to serve you and for your support. If you have a concern or issue that you would like for me to talk about on your behalf within the near future please feel free to contact me.
“Don’t just stand by, be a part of the conversation.” Vernita Naylor