WASHINGTON—Concern is being expressed by one congressman that fintech lenders may be taking advantage of small businesses and the self-employed.
Rep. Dean Phillips (D-MN) noted that during the Paycheck Protection Program, the Committee on Small Business watched as fintechs were making small-dollar PPP loans to small business, especially those in underserved communities, more effectively than traditional banks, according to Small Business Trends.
In a statement, the congressman said that while fintech lending had helped many entrepreneurs, concerns are escalating that industry practices may target and harm small businesses, Small Business Trends reported..
Terms are not always clear to small businesses stated Phillips, with many online lenders providing little or no information upfront to prospective borrowers about the loan or product.
“For instance, the speed at which fintech lenders deploy capital can come at a substantial cost. A conventional bank loan typically carries an APR of 4% to 13%,” Phillips was quoted by Small Business Trends as stating. “For Fintechs, APR for online loans and other financing products can start at 7% and climb higher than 100%.”
Additional Warning
The congressman further warned of what he alleged are predatory practices some fintech lenders can use that puts small businesses at risk. He alluded to how merchant cash advances (MCA) enable lenders to receive a fixed percentage of future sales until the financing is repaid, Small Business Trends explained.
“The extremely high-interest rates and daily repayments associated with MCAs can cause businesses to enter into an out-of-control debt spiral,” said Phillips.