By the Opportunity Finance Network
Small business owners pour their hearts and most of their resources into starting, growing and sustaining their businesses. Access to responsible capital is critical to grow and expand a business, which in turn is critical for financial security and creating jobs in the community.
Getting a small business loan has often been particularly hard for women and minority business owners. Women-owned businesses only get 4.4 percent of the dollar amount of all conventional small business loans. More than a third of minority business owners are worried they will not access the capital they need to maintain business operations. Furthermore, minority entrepreneurs are disproportionately denied credit when they apply for it, regardless of credit scores, income, or profits. The financial crisis that shook the entire national economy was damaging for small businesses in general, but especially small businesses owned by people of color, as large banks cut back on lending to small businesses.
In the wake of the recession, a plethora of online lenders have been promising small business owners “quick and easy” cash, without disclosing the hidden fees, high interest rates, and prepayment penalties. These tactics are harmful at the least, and can even drive some to go out of business. According to a recent survey by seven regional Federal Reserve banks, 20 percent of small businesses applying for financing in the past year went to an online lender. Though 75 percent of these businesses received at least some financing from these online lenders, only 15 percent reported being satisfied with their loans. This rise in unregulated, online alternative lenders provides an unprecedented but confusing variety of financing options, many of them designed more to help a lender’s bottom line than to help a small business succeed. (more…)