On the regular at PJP, we receive phone calls and postal service mailings that alert us to our qualification for thousands (or sometimes, millions) of dollars in unsecured funding for our small business. Today, we received not only a phone call urging us to press one to access our $90,000 unsecured line of credit, but we also got a big check in the mail for $48,760.00. Our lucky day, indeed.
After I tore the "check" up and threw it in the trash, I started to dwell and ended up a little irritated with the rapidly expanding predatory commercial lending market. I spent a few quick minutes researching Select Funding to find out the interest rate and term of repayment for the $48,760...but without completing the questionnaire, the information wasn't available. The check actually includes a custom URL allowing me to login to access the funds. In attempt to find out the terms of repayment, I entered the missing information (basically, our legal entity and number of employees) and submitted the link. And even then, no information was available about the interest rate or loan term. (And I bet they call us 2,925,405 times tomorrow at the store.)
Cash flow and working capital for small business is completely terrifying and overwhelming at times. Even when sales do well, balancing the cash between daily sales and all the bills to be paid can make the nicest person want to leave mean notes in the memo field of the check for each bill paid. And I've watched enough Hotel Impossible, Bar Rescue, Kitchen Nightmares and the like to know that the struggle is relative to the unique situation of each business. Which it is why it is no stretch to assume that for every person that gets one of the checks from Select Funding and throws it away, likely two go and cash it. Or Press One to access thousands of dollars in an unsecured line of credit from some generically named lending company located nine states away. At 350% interest, I'm guessing.
Remember when there used to be a payday loans store in every strip mall in America? They would loan funds short-term ($500 and under) to people in exchange for average interest rates of 391 to 521%. As states have worked to help people not get trapped into cycles of debt that never end (because 521% interest on a $500 loan basically means it gets refinanced every two weeks FOREVER), most have capped interest rates. In Missouri, that cap is currently 75% interest. Thus, the proliferation of payday loan stores dramatically decreased as the profit margin was cut by 85% or so.
And it sounds like perhaps this issue for commercial lending needs to be explored as well. Just spending a few minutes on the Missouri Department of Finance website alerts me that Missouri usury laws only apply to non-incorporated business loans of less than $5,000...meaning anything else is fair game. And if you love your small business like we do, I don't think it is unreasonable at all to assume that a fair number of people will be willing to pay 300%, 400%, or 521% interest for an unsecured line of credit to sustain their business if that is what it took to keep the doors open. And isn't that really the heart of predatory lending practices?
A great piece of legislation for the next session of the Missouri legislature would include the requirement that solicitation materials easily identify the interest rate and payment terms. A spectacular piece of legislation would also cap the interest rate at a reasonable amount (and please let that be less than 75% because 75% still screams predatory to me). Sounds like a good 2016 legislative issue to me.