If you’re a small business owner, getting access to capital when you need it is one of the most integral parts of running your business. In fact, recent studies among Texas and California business owners show that access to safe working capital is their number one need.
If you’ve ever applied for a business loan, you’re aware of some of the challenges in getting approved: prior cash flow snags, not-quite-high-enough credit scores, and risk-averse lenders to name a few. Is the federal government also acting as a roadblock to the money your business needs to grow and thrive?
Discrimination: Alive and Well in Lending?
A recent survey of business owners showed that more than half of respondents believe small business owners still face discrimination based on race, sex, age, national origin, marital status, or receiving public assistance, and these carry over to qualifying for loans.
“These findings highlight the importance of the CFPB’s 1071 rule to identify and address discrimination in the small business lending marketplace,” said Kevin Stein, deputy director of the California Reinvestment Coalition.
The Consumer Financial Protection Bureau’s 1071 rule would allow the agency to collect information about small business borrowers. A government watchdog created to make and enforce laws about consumer finance, the CFPB wants to increase its efforts to collect data from small business borrowers in hopes of revealing the existing gaps in access to credit for women and minority-owned businesses. Submitting information would be voluntary for business owners, and many economists agree that collecting this data could help identify possible discrimination, especially in regard to ethnicity and gender, as well as increase transparency to improve access to loans for all business owners.
How Much Regulatory Overhaul Is Too Much?
The financial crisis of 2008 resulted in heightened regulations surrounding loans of all types, and forced banks to clamp down on their credit requirements. Given that most of these regulations were put in place before lending marketplaces and their advanced underwriting technologies evolved significantly, there’s no arguing the need for an updated look at the regulatory framework of the industry as a whole. But lawmakers continue to debate the amount of control needed over business loans, and this may be hurting borrowers, especially women and minority-owned businesses, who need easier access to capital sooner rather than later.
Several lawmakers, including the Treasury secretary, congressional Republicans, and the acting Comptroller of the Currency are seeking to kill Obama-era lending regulations, which would in turn, bring the CFPB’s data collection efforts to a halt. The House has pushed through a bill known as the Financial Choice Act which calls for an overhaul of the CFPB as well as much of the regulation already in place. The bill is not likely to pass through the Senate though, according to most experts. You can track it’s progress here.
Has your small business experienced difficulty getting access to capital or possible discrimination while trying to qualify for a loan? Share your experience in the comments.