Would you sign for a personal loan or credit card without knowing the interest rate? Of course not. So why should it be any different for your business? The Truth in Lending Act of 1968 protects your consumer credit transactions, but business lending is still like the wild, wild west. Since 82 percent of businesses fail because of cash flow problems, financing your small business is a crucial component to your survival.
But the reality is you’re most likely not a financial expert. Unlike a Fortune 500 company, you probably don’t have a finance department that can spend hours and hours trying to decipher loan disclosures.
I’ve lived through the pain of trying to figure out complicated financing documents. If you’ve never experienced it, it’s easy to say: “the borrowers will figure it out. They know what they’re doing.” But many of you don’t. Which is why I started Nav.
Nav’s mission is to connect the small business ecosystem, powering transparency and efficiency for financial decision making. As the CEO of Nav, I felt compelled to fight for SB 1235. Here are three reasons why this bill is crucial to the success of your small business.
Informed Financial Decisions
Figuring out financing for my small businesses was always a miserable experience for me. It’s challenging to make smart financial decisions if you don’t know all the parameters. When I made a mistake, it was tough to recover from since it severely affected the forward momentum of my business. Imagine the financial fallout if you thought you were paying an APR of 15 percent only to discover it was over 100 percent.
There may be a time in your business journey that you accept a high-interest rate loan or credit card as a strategic choice to help move your business forward. But a high APR should not be a last-minute shock.
Bad Lenders Can’t Hide
Most business lenders are above board, transparent and innovative in finding ways to get you the capital you need to run your business. They work their butts off to provide you with financial solutions, and they should be applauded.
Unfortunately, there are also bad actors that prefer to hide their loan parameters under a cloak of invisibility. They’ll use high-pressure sales and marketing tactics that made it difficult for you to understand the costs associated with their product. SB 1235 will rip off the cloak and expose them to the light. Their predatory lending tactics will no longer be possible.
A Boost to The Economy
There are 3.8 million small businesses in California. If SB 1235 helps even a tiny percentage of those succeed, it will have an enormously positive impact on the economy. Imagine the influence it will have on the nation’s economy once every state passes similar legislation.
To be clear, I would never support legislation that caps interest rates or imposes limits on what kind of financing can be offered. As I said, there may be times when accepting a cash advance with a triple-digit APR helps your business. But you have the right to weigh the pros and cons of choosing that type of financing.
Consider the significance this legislation will have. Small business employs nearly half of all of (California’s) employees. But, according to the US Department of Labor, 100,000 California small businesses close each year. And the data show a top reason these businesses fail is due to inadequate credit arrangements.
Running a small business is challenging. You’re a real person supporting a real family and actual employees. Your blood, sweat, and tears are real. The last thing you need is to get ripped off by the people who are lending you money. SB 1235 is currently in California only, but it will pave the way for small businesses nationwide to enjoy the same protections.
Resources:
- https://www.businessinsider.com/why-small-businesses-fail-infographic-2017-8
- https://www.nav.com/blog/sb-1235-and-truth-in-lending-what-it-means-for-small-business-owners-31548/
- http://www.borrowersbillofrights.org/uploads/1/0/0/4/100447618/sb_1235_support_coalition_and_rblc_comment_-_small_business_disclosures_file_no_pro_01-18.pdf