Last year, Woodstock worked closely with the Responsible Business Lending Coalition to develop a Small Business Borrower Bill of Rights (BBOR). The BBOR was intended to establish best practices for the industry, including, for example, the responsibility to disclose an APR. The BBOR is, however, completely voluntary. There is no mechanism to enforce the BBOR against lenders who sign on to it, and some major lenders have simply refused to sign on to the BBOR.
Online lending has grown incredibly fast and is turning into a multi-billion dollar market. According to a 2014 report by the Harvard Business School, the outstanding portfolio balance of online lenders has been doubling every year. Online loans have become increasingly popular with small business owners who are frequently unable to obtain loans from traditional financial institutions.
But now, the small-business backbone of the economy is slowly rising to the occasion, often with the assistance of state governments.
Here's one such example from the state of Washington: The Small Business Retirement Marketplace, signed into law last week by Washington Governor Jay Inslee, will provide an estimated 1.5 million residents in the state with access to workplace-based retirement accounts.
“Businesses need affordable capital in order to grow, create jobs, and generate economic activity,” said Spencer Cowan, Vice President of Research at Woodstock Institute. “This research clearly shows that businesses in low-income and majority minority communities do not have the same opportunities to expand as businesses in high-income, majority white neighborhoods, potentially exacerbating the wealth gap and stifling entrepreneurship that could help rebuild distressed neighborhoods.”
Data from all regulated financial institutions shows the impact of the Great Recession on the availability of credit. Lending to businesses declined by 4.8 percent nationally between 2008 and 2011. The dollar volume of small loans to businesses declined even more sharply than lending to businesses generally, down about 14.6 percent nationally between 2008 and 2011.
The report, which was commissioned by the Appalachian Regional Commission, and authored by NCRC and Woodstock Institute, details trends in the availability of capital and credit to small businesses in the Appalachian Region.
As a partial owner of North Chicago Auto Service, which does car repairs and towing for the city’s police department, Otero-Cintrón makes serving the community central to his business. If a customer is having trouble paying for badly needed repairs, he works with them so they can pay when they are able and still be able to drive to work. Located down the street from the Great Lakes Naval Base, he’s always willing to negotiate a deal with the men and women serving our country.
Creating a Small Business Lending Fund
President Obama continued his push last week for the creation of a Small Business Lending Fund that would increase capital to small financial institutions so that they would increase their small business lending. The Small Business Lending Fund Act (HR 5297) has passed out of the House Financial Services Committee and is likely to be voted on by the House this week. HR 5297 would also support several innovative state programs that encourage lending to small businesses.
Both in the U.S. and worldwide, microfinance has successfully become a tool for financial inclusion. Its popularity is demonstrated by its average annual asset growth of 39% between 2004 and 2008. Commercial banks and investors are increasingly interested in investments in microfinance institutions (MFI), which some in the industry celebrate because it represents scale and ability to reach hundreds of millions.