Insights into the world of small business lending and development
Controversial cash advances come at a high cost to small businesses
Today, Octavio Blanco of CNN Money took a look at the negative impact that short-term financing—known as merchant cash advances—have on small businesses, and the alternative solutions that CDFIs provide.
Lauren Stebbins, OFN Vice President, Small Business Initiatives, weighed in on the problem, "Black and Latino businesses are denied credit by banks at a higher rate than white-owned businesses, so they go to alternative financial products offering easy, fast financing." The problem, reports CNN Money, "is the advances aren't regulated by the government and the fees, penalties and rates aren't subject to any oversight. In addition, the terms of the advance aren't always clearly outlined and the total amount owed—including the hefty fees and charges that are tacked on top of the initial advance—isn't usually expressed as an annual percentage rate."
As Lauren explains, small business owners "may not know what they're getting into because those providers aren't required to disclose their terms."
Eric Weaver, CEO of Opportunity Fund, also shared insights on the negative impact of these loans, which take automatic deductions as long as there is money to withdraw from the businesses till that can ultimately lead to shuttering the business.
Read the full article here.