State lawmakers are working to regulate predatory small business loans
Lawmakers are considering a bill that would regulate a currently unregulated set of business loans that some say are predatory.
When the pandemic struck, many businesses were struggling to survive – especially restaurants that did not have the right connections at banks to help them secure federal bailout money. Amy Wentz of the Richmond Black Restaurant Experience says that's when restaurant owners started hearing about a new kind of loan – a merchant cash advance.
"The messaging was coming out as, 'We know you're having a hard time during COVID. This is some relief for you,' to make it seem like it was like COVID relief," Wentz explains. "But really once you dig down into it, it's really not."
Delegate Kathy Tran of Springfield says these merchant cash advances are totally unregulated. And they’ve got higher fees and rates than traditional loans. And businesses that offer them are not required to disclose the total cost of the advance. She says she heard from Black restaurant owners who took these advances and now is living with the consequences.
"Now they’re tens of thousands of dollars in debt, and really their whole livelihood is at stake because it's just been a practice that was really complicated," Tran says. "But they needed in that moment the cash to survive, but now in the long term it's been a real ordeal."
Tran's bill creating some new rules passed with a unanimous vote in subcommittee; a good sign for the effort to make sure small businesses across Virginia are not harmed by predatory lending practices.