Over the past year, Woodstock has expanded the work it has done to promote greater access to safe and affordable credit for small businesses, building on our 2014 report, Discredited: Disparate Access to Credit for Businesses in the Chicago Six County Region. That report examined lending by large banks to businesses in lower-income neighborhoods and communities of color, specifically small loans that are most likely to go to locally-owned, neighborhood businesses that provide jobs to local residents. The analysis of lending patterns showed that businesses in those neighborhoods were much less likely to have received loans from large banks than businesses in more affluent, predominantly white neighborhoods.
In part because large banks are not meeting the credit needs that neighborhood businesses have for small loans, a new breed of lenders has emerged, operating online, in a space that is virtually unregulated, with some engaging in the same kinds of predatory practices that characterized the small dollar consumer lending space a few years ago. They provide fast access to capital, but frequently the loans have very high interest rates, hidden fees, and allow the lender to take money directly from the businesses bank account, sometimes on a daily basis. As a result, business owners can become trapped in a cycle of debt similar to consumers who take payday or auto title loans. The loans bleed badly-needed capital from the business and can ultimately lead the business to fail.
Woodstock has worked in conjunction with the Office of the City Treasurer, City of Chicago, and Accion Chicago to help develop guidelines for ethical standards for small business loans that the City could then publicize through small business development centers to make budding entrepreneurs aware of the types of loans terms that they should look for when securing capital, and the terms to avoid. Woodstock also consulted with Accion Chicago, which was participating in a national initiative of lenders and advocates to develop the first parameters for affordable, ethical, and sustainable small business loans, and attended the national unveiling of the Small Business Borrowers Bill of Rights in Washington, DC, in August.