Whether or not you’re not big on following politics or your local government, it’s worth your time to learn about California’s SB 1235. Many of us take for granted the fact that any personal loan or credit card or other consumer lending product comes with some key details, such as the total amount being financed, the cost of financing, repayment terms, etc. It’s not just nice information to know, it’s also a way that the law protects consumers. What may not be so well-known to the general population is that these details have not always included in small business financing.
Studies have shown that small business owners are simply unaware of the cost of the financing they often use to keep their business running. This is a clear problem, and one that leads to significant challenges for small businesses and jeopardizes the health of small businesses in the country.
This has become the norm for a number of reasons, primarily the belief that a small business has the same resources to understand intimately the details of the financing they are taking out that a larger, more established corporation has. As more and more individuals seek independence from the job market and start their own businesses, this has become less and less true, and the standards have become a hindrance to their success. The new bill would give small businesses the information they need to compare different financing options and choose the best one for them.
“That’s pretty hard to do,” says Levi King, founder and CEO of Nav. “These aren’t corporate titans with power.”
While it is not yet at a national level, California’s SB 1235 would change truth-in-lending practices to benefit and protect small businesses. SB 1235 would require lenders to provide the same truth-in-lending disclosures given to individual consumers when providing loans or other financial products to small businesses. This includes:
- Total amount of financing
- Total cost of financing
- Term length
- Frequency and amount of payments
- Pre-payment policies
- Annualized rate
As the bill, written by representative Steve Glazer, passed through the California state House and Senate, Levi King was there to represent Nav and the interests of small businesses everywhere by testifying in favor of the bill. More transparency will serve to help small businesses everywhere, as California takes the lead and sets a strong example for the rest of the country.
Most business lenders are good, honest, and transparent, and this bill may not severely change the way they do business. The issue comes from those in the space who use various tactics to make their product hard to understand and pressure entrepreneurs into using financing that, in the end, doesn’t help. SB 1235 will force these bad actors to change their tactics and step out into the light.
The bill has passed both the California state House and Senate, and finally needs to pass the Governor’s desk to be signed into law. This would be a landmark win for small businesses and likely start a wave of change in the entire country.
With this added information available to small business owners, the life of small businesses is bound to be prolonged. That’s good news not only for entrepreneurs, but for consumers and for the economy.
This article was originally written on September 10, 2018 and updated on September 11, 2018.