Business Success with Barriers, Signs to Avoid Predatory Lending

By Brando Sencion, Program Coordinator
 
According to the Silicon Valley Business Journal, in 2012 there were 3.3 million Latino-owned businesses in the United States, which grew by 46% from 2007. In contrast, white-owned businesses declined by 6% in that same time period. Latino business ownership leads the nation in growth for businesses ownership, but they still face many financial barriers. A common barrier is access to bank loans.
 
A 2018 study by Stanford Graduate School of Business found that Latino business owners rely on informal financing and are subject to greater financial risk due to low credit score and limited credit history. The results of these circumstances are that Latino business owners are more than likely to have limited access to traditional bank loans and are subject to high interest rates.
 
The barrier to access traditional banking loans may lead Latino business owners to access quick and easy funds from alternative lending services. More than often alternative lending services can impose unfair and abusive lending terms for the borrow, which are predatory loans. These types of loans tend to be short term, easy to obtain, involve fees such as pre-payment penalties, and consist of unclear terms and pricing.
 
Here are 3 common signs of a possible predatory loan:
 

1. Unclear Terms: The lender is lacking transparency and fees and interest are not clear.
2. Pre-Payment Penalties: The lender will penalize you for paying back your loan early.
3. Easy Approval: The lending process was fast and easy with little to no required documents.

 
Find more warning signs here.
 
The issue with these barriers is that it limits Latino business owners to fully grow their businesses. At times additional capital is needed to inject in a business to improve its performance. Or a business is having a tough month and needs some extra funds to make ends meet. Not having access to funds that will benefit a business is tough. These barriers can inhibit business owners from reaching their full potential.