Chicago Launches Campaign to Assist Business Owners Defend against Predatory Lenders

Lee Edwards | 1/21/2015, 3:17 p.m.
A new campaign has been launched by the City of Chicago to help educate small business owners on how to ...
The City of Chicago announced a new campaign geared toward educating small businesses on how to identify predatorial lenders and practices last week.

A new campaign has been launched by the City of Chicago to help educate small business owners on how to identify and avoid predatory lenders. In recent months, Business-to-Business (B2B) lending institutions including Merchant Cash Advance (MCA) have accelerated their marketing efforts, resulting in several local small businesses signing on to loans that they cannot afford.

MCAs typically offer their loans or cash advances to businesses with poor credit and with effective interest rates over 100%, shorter payback periods and daily repayments. Even if the business has to close its doors in a year, the MCA has already recovered its loan or advance.

“Small businesses are the backbone of our economy and their success is important for Chicago’s economic future,” said Emanuel. “Access to capital is a priory for our small businesses, but it has to be affordable and we need to ensure that businesses understand what programs are available to them and how to protect themselves as they grow.”

The city will promote this new campaign on the CTA as well as through e-mail, new workshops on access to capital, and education for the City’s Neighborhood Business Development Centers.

In October, 2014, the City established Capital Access Centers (CAC) to help small businesses better understand all of their loan options, and to help them improve their credit so they can get a more affordable loan. The CACs can connect businesses to the right lender and be an advocate in the lending process. They primarily work with small businesses seeking loans between $25,000 and $250,000.

In addition to workshops around improving credit, the City is adding new workshops on Access to Capital and has created a new website devoted to protecting businesses from predatory lending practices – www.cityofchicago.org/businessloans. The City will also leverage its Neighborhood Business Development Centers to educate businesses on predatory lending.

In 2012, Mayor Emanuel launched the Chicago Microlending Institute (CMI) to help businesses access loans up to $25,000. CMI is a revolving loan fund of $2 million to help seed new microlenders that can offer affordable business loans between $500 and $25,000.

According to its website, CMI is the first institute in the nation that trains new lenders to make targeted loans to the City's smallest businesses. For more information about CMI visit http://www.cnigroup.org/microlending.html.

One of the City’s CMI partners, Accion Chicago, has already been approached by dozens of small businesses that have taken loans from MCAs with effective rates over 100% APR and daily payments that they cannot afford. These businesses have been contacted by brokers and through emails, calls, and direct mail offering loans as quick, easy cash with flexible payments. Loan payments are often taken directly from a business’s checking account.

According to its website, Accion Chicago is an alternative lending organization dedicated to providing credit and other business services to small business owners who do not have access to traditional sources of financing.

“When a business feels it’s in a financial bind, it’s hard to stop and think, and ask questions to ensure they are getting into an affordable loan they can repay,” said Jonathan Brereton, CEO of Accion Chicago.

Today, most protections are for consumers and not for businesses, but predatory lenders also target small businesses that would benefit from similar protections. Mayor Emanuel will call on State and Federal regulators to ensure MCAs and other B2B lenders are regulated so that Chicago’s small businesses can continue to thrive.

“Until regulation is in place, the City of Chicago will continue to relentlessly promote its business resources and forge partnerships with reputable lenders who can truly help businesses start, thrive and grow,” said Commissioner Maria Guerra Lapacek of the Department of Business Affairs and Consumer Protection.

More information about business resources is available on the City of Chicago’s Small Business Center website at www.cityofchicago.org/SBC.