This week--we celebrate National Small Business Week. My twitter feed is running wild with pronouncements from POTUS, tons of SBA events, and lots of public relations twists from various companies looking to show their support of the small-business community.
And while we indeed have a lot to celebrate with the continuous innovation and success of our entrepreneurial ecosystem, I would argue that there are grave concerns--particularly in how our small-business owners and entrepreneurs access the vital capital they need to grow and evolve their businesses.
Let me explain.
As you read this, there are some thousands of sales people in hundreds of companies around the country hammering away on the phones trying to convince business owners to take up their too good to be true offers for working capital in their banking accounts in 24--48 hours.
The offer is so tempting. The salesperson might say--I will give you $50K, and you will pay me back $60K. Sound like a 20% interest rate--not so fast. In this example, if the money is paid off over six months, and debited out of the business owners account in daily increments--the effective APR in closer to 80%.
The borrower thinks they're borrowing money at 20% - but they are actually paying about four times that much. It's the beginning of a vicious debt trap that often sends the borrower into multiple rounds of renewals, and in many cases they often shut down their business.
Crazy--yes. Can it be stopped--it should.
I am not opposed to high interest loans. I think there are opportunities where they are necessary and appropriate. I am against pricing schemes that trick the small-business owners we are supposed to be celebrating this week into a trap they can often not get themselves out of.
So what can we do to help?
First of all, if you're in the market for a loan, take the time and demand to know the APR. Don't fall for the trap. Education is key.
And secondly, if you are a fan and advocate of small-business let your legislators know that you believe there should be clear APR disclosures. The legislative and regulatory battle is heating up in Washington and we should let our voices be heard. And if your favorite brands or celebrities are promoting these products, ask them to stop.
This week, let's celebrate small-business owners with actions and not just words.