New Law Would Protect Small Businesses



Albany Business Review, 10/15/20


In this time of immense uncertainty for small businesses, at least one thing is clear: Additional government-backed financial relief will not come any time soon. Partisan gridlock in Washington continues to prevent policymakers from reaching an agreement on desperately needed Covid-relief funding for small businesses. Members of the UpState New York Black Chamber of Commerce cannot afford to stand idly as their resources dwindle. Our small businesses must quickly find an alternative financing lifeline or face the unthinkable reality of closing their doors. Gov. Andrew Cuomo now has the opportunity to help vulnerable businesses safely navigate the minefield of alternative financing products and secure the capital they need before it is too late.

Access to capital has long been a top concern for business owners — especially business owners of color. As bank lending to small businesses remains elusive, Black business owners have increasingly utilized alternative financial products to meet their credit needs. Research from the Federal Reserve shows that Black-owned businesses are at least twice as likely as white-owned businesses to use products like merchant cash advances and other alternative financing. While these products provide access to capital, many are accompanied by a lack of transparency that can lead our businesses down a path of destruction.

Merchant cash advances (MCAs) are essentially payday loans to small businesses, providing fast cash at a high price that is not clearly disclosed to borrowers. The Federal Reserve found that small businesses do not understand the true cost of MCAs and similar products, and are misled by confusing, “non-standard terminology” used to describe their interest rates and repayment terms. This confusion has led too many small businesses into debt traps with never-ending fees that drain vital resources and ultimately force our businesses to close.

Fortunately, the New York State Legislature recently passed Assemblyman Kenneth Zebrowski and Sen. Kevin Thomas’ Small Business Truth in Lending Act (A10118/S5470) that would bring much-needed transparency to small businesses seeking financing. This bill requires all alternative financing companies to clearly disclose their pricing and terms upfront, so that small business borrowers are not enticed into debt traps on false pretenses and can make informed financing decisions. Once signed into law, the Small Business Truth in Lending Act will serve as the nation’s strongest commercial financing disclosure bill and help our state take one large step forward to improve outcomes for Black entrepreneurs.

Transparency is not a cure-all for systemic inequities in small business financing. Significant work remains to expand access to affordable capital for business owners of color — starting with the banks that turned away Black businesses seeking Paycheck Protection Program loans. However, by requiring transparency and fairness from alternative financing companies that disproportionately target our entrepreneurs, we can create meaningful change and end the deception that is costing New York’s minority-owned businesses hundreds of millions of dollars per year.


Now is the time to protect Black businesses from deception as they search for financing lifelines to endure the Covid-19 crisis. We urge Gov. Cuomo to champion lending transparency in the nation’s financial capital by signing the Small Business Truth in Lending Act without delay.


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