SAN FRANCISCO, CA--(Marketwired - May 24, 2016) - Opportunity Fund, California's leading nonprofit microfinance provider, today released its latest research report, "Unaffordable and Unsustainable." The report offers a first-of-its-kind analysis of the loans being offered to small businesses by short-term, high-cost alternative lenders. This growing market of alternative lenders operates outside of government regulation, with many unregulated lenders selling short-term, high-cost financing products that do more harm than good.
The research draws conclusions from a detailed dataset of alternative loans held by small business owners who came to Opportunity Fund in hopes of refinancing. The report uncovers punishing loan terms from short-term, high-cost lenders, including an average annual percentage rate (APR) of 94 percent and an average monthly loan payment that is nearly double the owners' net incomes. These predatory lending practices can be devastating to small business owners, many of whom turned to alternative lenders after being denied capital from traditional banks.
"The short terms and extraordinarily high cost of these loans put many small business owners in a cycle of debt that can be nearly impossible to get out of," said Eric Weaver, CEO and founder, Opportunity Fund. "We want to stress that not all non-bank small business lenders are doing this, and we applaud the ones that have signed on to the Small Business Borrowers Bill of Rights. Like Opportunity Fund, they are working to give small-business owners access to affordable and responsible credit to build their businesses, support their families and create jobs."
Highlights from the report include:
- The average alternative loan in the dataset carried an APR of 94 percent, with one loan priced at an astounding 358 percent APR
- The average monthly loan payment for businesses in the dataset is nearly double (178 percent) the net income available to their owner(s)
- Among Hispanic borrowers in the sample, the average monthly payment was more than 400 percent of take-home pay
- More than 25 percent of these businesses succumbed to multiple alternative lenders, in a practice called "stacking" in which lenders provide a follow-on loan to a small business that already has a loan
- Among the businesses Opportunity Fund helped refinance, owner(s) cut their monthly payments by over 60 percent and their APR by an average of 85 percent
High cost, predatory lenders operate in a regulatory void, resulting in a growing number of small-business owners accruing debt they can never repay. This report underscores the need for small business owners, lenders, advocates and policy makers to join together and demand transparent and responsible lending.
Download the report here and join our webinar on June 1 at 11 a.m. PT to hear more about the results.
About Opportunity Fund
Opportunity Fund, California's leading microfinance provider, believes that small amounts of money and financial advice helps people make permanent and lasting change in their own lives, driving economic mobility and stronger communities. We empower small business owners, low-income students and working families because entrepreneurship, education and sound financial habits are proven pathways to a thriving economy. Our strategy combines microloans for small business owners and microsavings accounts to help students pay for college and families save for a rainy day. Since 1994, we have invested $115 million and helped more than 12,000 people across California. Learn more at www.opportunityfund.org.
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