State lawmakers scramble to regulate predatory small business lending

Lawmakers are considering a bill that would regulate a currently unregulated set of business loans that some call predatory.

When the pandemic hit, many businesses were struggling to survive — especially restaurants that didn’t have the right relationships with banks to help them get federal bailout money. Amy Wentz of the Richmond Black Restaurant Experience says that’s when restaurant owners started hearing about a new type of loan: a merchant cash advance.

“The message went out as follows: ‘We know you are going through a difficult time during COVID. It’s relief for you, “to make it sound like it was like COVID relief,” Wentz says. “But really once you’ve dug into it, it really isn’t.”

Delegate Kathy Tran of Springfield says these merchant cash advances are completely unregulated. And they have higher fees and rates than traditional loans. And companies offering them aren’t required to disclose the full cost of the advance. She says she’s heard from black restaurateurs who accepted those advances and are now living the consequences.

“Now they have tens of thousands of dollars in debt, and their whole livelihood is on the line because it’s just a practice that was really complicated,” Tran says. “But they needed the money then to survive, but now, in the long run, it’s a real test.”

Tran’s bill creating new rules passed by unanimous vote in the subcommittee; a good sign for the effort to ensure that small businesses in Virginia are not harmed by predatory lending practices.

This report, provided by Virginia Public Radio, was made possible thanks to the support of the Virginia Education Association.

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