PROTECTING MAIN STREET SMALL BUSINESS OWNERS FROM PREDATORY LENDERS
WHEREAS, America’s 26.8 million small businesses are the engine of the U.S. economy, employing half of all private-sector employees, representing 99.7% of all employers, and responsible for 45% of net new jobs generated annually in the last decade, and
WHEREAS, eight million of these small businesses pursue financing each year throughout the United States, and
WHEREAS, 65% of these eight million (5.2 million) are unable to secure traditional bank loans or lines, and
WHEREAS, as a result, many small businesses use family money, personal credit cards or personal loans and approximately 35%have relied on home-equity loans to finance their businesses.
WHEREAS, the recent turmoil in both the housing and credit markets has caused banks to tighten their lending criteria and consequently, credit opportunities to small business owners have been significantly reduced, and
WHEREAS, a perfect storm has emerged across the United States, leaving many small businesses, including millions throughout the main streets of our cities and towns, struggling to access the capital they need to sustain and grow their businesses, and
WHEREAS, predatory lenders have emerged to exploit the current credit environment and increasing cash flow needs of small businesses and are selling usurious products known as merchant cash advances (MCA), which are advances on a business’s future credit card receivables (aka “factoring of future credit card sales”), and
WHEREAS, merchant cash advances are not loans and do not have to follow state or federal lending regulations, and feature over 85% approval rates and imputed annual percentage rates as high as 200%, and in addition to these egregious rates, require daily deductions of 18-25% of the small business’s credit card sales
-significantly more than a business can afford, and
WHEREAS, merchant cash advance companies have already lent approximately $2 billion at egregious rates and have been quoted in leading main stream media publications such as Forbes, Business Week, Dallas Morning News, and American Banker claiming that their new originations have increased 75% in the first half of 2008.
WHEREAS, America’s cities need strong Main Street businesses to continue to have a stable tax base, safe streets and a vibrant commercial center, and
WHEREAS, as with payday lenders and predatory lenders in the home mortgage community, Mayors need to take a leadership role to scrutinize predatory merchant cash advance companies, educate small business owners of the dangers posed by these firms, and increase awareness and promotion of alternative, more affordable funding sources to support this vital segment of our economy.
WHEREAS the mayor in each of our cities can protect our small businesses by promoting and advising small business owners to ask and have answered five simple questions before agreeing to accept any type of financing from a non-traditional provider:
NOW THEREFORE, BE IT RESOLVED, that The US Conference of Mayors strongly supports small businesses and the independent business owners located in our cities and will protect them from predatory lenders offering exploitive merchant cash advances;and
BE IT FURTHER RESOLVED, that the mayor in each of our cities shall educate Main Street business owners and the small business community of the dangers of merchant cash advances and promote to them alternative lending sources that are more affordable.
BE IT FURTHER RESOLVED, that to protect the general health and viability of their small business communities, cities should investigate whether they can effectively regulate or ban merchant cash advances.