About 98% of Illinois businesses are small firms with under 100 employees, or are self-employed solopreneurs and gig workers. These hard-working small businesses are economic lions that create two-thirds of net new jobs, spur innovation and foster community for a diverse, thriving economy.
Yet, the owners of these small firms are hardly living large: Their median household income is just over $46,000, and they often lack the capital needed to strengthen their businesses.
At the same time, loans from traditional banks are increasingly difficult for small business owners to secure. Research from Small Business Majority found half of small business owners have taken steps to access funding but only around a third who sought it ultimately secured it.
Most of those that did receive funding secured $50,000 or less, and almost a quarter reported that the funding they received was insufficient. The gap between need and available resources is particularly wide for small businesses owned by women and people of color. After all, just 20% of Latino-owned businesses that sought more than $100,000 from a national bank received funding. And for women business owners, their loan success rate isn’t much better — only 36%.
This is where predatory online lenders see an opportunity. They can be found through a simple Google search. They promise $1 million or more in a day, when Illinois small businesses actually collectively lose about $1 million a day in savings due to unregulated loans. With nowhere to turn, desperate entrepreneurs trying to stay afloat often take the tempting option they see before them without realizing these seemingly easy loans are a trap with the power to bankrupt a business.
Fees add up quickly
Although some online sources of business loans are honest, many non-bank lenders and special interest private companies use a legal loophole to hunt and bait small businesses with loans that have interest rates between 48% to more than 350% — often disguised as “fees.” Although the federal Truth in Lending Act requires clear disclosure of true annual percentage rates in consumer loans, no such law exists for small business loans.
This gives cover to unscrupulous non-bank lenders, many of whom claim their products are not even loans. Others have argued that there’s no need to show a business the true APR for something that is just “a six-month, short-term loan.”
In reality, entrepreneurs who are unable to make apples-to-apples comparisons for lending products get caught in a financial eddy circling the bankruptcy drain because the real APR for their loan wasn’t disclosed up front before signing. When a non-bank lender claims that a business owner defaults on a loan, the lender can charge the owner hidden fees — even if the owner tries to repay the loan early by paying down the principal. These lenders claim this is all just fair competition, but loopholes reward a corrupted form of capitalism that would make Adam Smith, the father of modern economics, cringe.
That non-bank lenders are allowed to get away with these deceptive tactics is a bigger problem today than ever given sky-high prices from tariffs and inflation, soaring health costs caused in part by federal cuts to Medicaid (a third of all people enrolled in Medicaid nationwide are connected to small businesses), and new rules limiting loans backed by the U.S. Small Business Administration based on business owners’ country of origin.
We’ve seen our share of small businesses lose significant money or even their entire enterprise as a result of predatory lending products that did not clearly disclose APR. Equitable opportunities for small businesses to access affordable capital and build generational wealth also reflect Illinois’ history of helping its residents overcome income, gender, race and citizenship inequalities.
With this in mind, we urge every Illinois small business owner to speak up about the importance of transparent APR requirements for small business lending products and to call on Gov. JB Pritzker and other Illinois lawmakers to pass the Small Business Financing Transparency Act. For too long, Illinois has allowed hunters to win by letting them take advantage of small businesses. It’s time for our state to side with the lions who are our nation’s job creators.
Jaime di Paulo is president and CEO of the Illinois Hispanic Chamber of Commerce. Geri Sanchez Aglipay is a senior fellow at Small Business Majority and former Great Lakes regional administrator for the U.S. Small Business Administration.