Pub. 6 2016-2017 Issue 1

22 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S Many business owners who seek loans online and get approved quickly for these predatory loans. S mallbusiness- es–including those in Col- o r a d o – a r e suffering the conse- quences of increased and burdensome reg- ulations on banks. Because of new rules put in place post-cri- sis, banks often are forced to tell worthy borrowers ‘no,’ when just a few years ago, they would have been able to say ‘yes.’ In response, more borrowers are turning to largely unreg- ulated online lenders, some of them predatory, that boast fast and simple approval processes. But is this trend a healthy one for small business, especially in Colorado where 97% of all em- ployers are small businesses?With access to credit for small businesses down nationwide by 38% since the recession due to tighter banking regulations and the community bank sector shrinking to half its size since the 1980s, the proportionate rise in availability of online business lending, in tandem with advances in financial technology (fintech), was inevitable and the popularity of online lending has grown exponentially. Although it has its place, such as for very short-term, quick repayment needs that a business might encounter, in exchange for quick-click funding, small business owners are often, unknowingly, committing to exorbitant rates and fees that can run as high as 80%. At Colorado Enterprise Fund (CEF), we see the consequences of decreased bank lending and increased access to online capital on the small businesses we serve. Many business owners who seek loans online and get approved quickly for these predatory loans eventually come to CEF and other nonprofit lenders to refinance their debt when onerous fixed payments required on a daily or weekly basis begin to crush their cash flow. Payments are electronically drawn directly from their bank accounts without regard to the salaries, purchase orders or utilities that need to be paid, thus jeopardizing business and employee relationships if cash flow is tight. In some cases, these business owners may also endanger the security of their personal and business information by providing sensitive data to online business lenders who require this information for direct access to business bank accounts to secure rapid repayment. FEATURE ARTICLE CEYL PRINSTER PRESIDENT AND CEO COLORADO ENTERPRISE FUND The Growth of Online Lending Options for Small Business — HEALTHY OR HARMFUL?