An Opportunity for Facebook
Don't accept ads for Predatory Business Loans
No matter what kind of loan (personal, business, mortgage, car or anything in between), there are unscrupulous lenders looking to take advantage of often desperate people who need money.
And payday lenders are among the industry's biggest blight, which is why Google's announcement that it will no longer accept ads for payday loans--those where repayment is due within 60 days or where the APR is 36 percent or above--is so important. Google itself summarized nicely the importance of the move:
"When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users, so we will be updating our policies globally to reflect that" Google wrote in its Public Policy Blog. "This change is designed to protect our users from deceptive or harmful financial products."
So, what's the impact on small business lending? Nothing yet. And that creates an opportunity.
Predatory lenders lurch in all categories--includes hundreds whose business is to put business owners on the debt treadmill that Google is taking a stand against.
Too often, fledgling businesses--having either been declined for loans backed by the Small Business Administration (SBA) or fool heartedly not even considering the option--decide they need money at any cost.
That drives them to the so-called "online" or "alternative" lenders, who often serve as lenders of last resort. While their looser underwriting standards allow them to fund small businesses lacking a track record, assets or good credit, they can be problematic, too.
For the privilege of their loan, the small business may have to pay an outrageous interest rate, be subject to unfavorable repayment terms and deal with limited transparency.
In other words, those are the same kinds of things commonly found in loans made by payday lenders.
Granted, there are many reputable online and alternative lenders, but the concept of money at any cost is one business owners need to carefully consider.
There are plenty of stories out there about owners that get caught in a never-ending debt spiral that ultimately forces them into bankruptcy or, in the best case, sets back growth for years on end.
Sure, sometimes a loan can't be avoided, but the antidote often is to avoid debt simply until the business is in a more favorable position--such as when cash flow improves or sales start to boom.
Yes, the company that avoids the loan may have to pass up good opportunities, delay expansion or even temporarily scale back, but the resulting clean slate surely will be more palatable than the kind of debt that produces sleepless nights.
Can these loans be avoided? It would certainly help if publishers would not promote them and would take an active stand against them.
So here is an idea: why doesn't Facebook, who strongly promotes themselves as an advocate and huge fan of small--businesses, take a leadership stand on the small-business front like Google has on the consumer front.
It's always ironic to me that on my Facebook feed on the same page as I see one of their press releases or announcements supporting small business, it can follow with an ad for a company that is happy to lend money to those businesses at APR's north of 100 percent.
Facebook's message would be more consistent and powerful if they didn't let these ads onto the platform at all. I hope they will consider this idea.