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Legislation aims to correct small business loan disparities

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(The Center Square) – Legislation is being crafted to make small business loans more accessible in low-income communities.

According to Woodstock Institute, a nonprofit policy organization, data shows that despite making up about 28% of Illinois small businesses, businesses in low-to-moderate income census tracts only received 22% of small business loans from 2018 to 2022. Businesses in upper-income census tracts received nearly 8% more loans relative to their share of Illinois small businesses.

The Small Business Truth in Lending Act in House Bill 3064 seeks to establish a regulatory framework in Illinois for “non bank” lenders to small businesses.

“By supporting small businesses, we are investing in the success and vitality of our state for all,” said the bill’s sponsor, state Rep. Hoan Huynh, D-Chicago. “They are an essential part of our community, and this town hall was a chance to address the needs and concerns of business owners to ensure we are protecting them.”

Brent Adams, senior vice president of Policy and Advocacy at Woodstock Institute, said systematic racism is evident when it comes to lending, including lending to small businesses, but the pandemic and the protests following the murder of George Floyd by a Minneapolis police officer improved conditions.

“In response to such pressure, banks pledged to devote a large amount of financial resources to correct the many inequities in our financial systems,” said Adams. “These commitments may have had an impact, but it’s far too early to celebrate.”

Adams added that time will tell if the improvements are just temporary.

Nonbank financial technology, or fintech, lenders to small businesses, which are mostly online, are unregulated in Illinois, as in most other states.

“Access to responsible capital is a top concern for small business owners, which is why our state must do more to ensure our entrepreneurs have the protections they need when seeking financing,” said Tasha Brown, Illinois director of the Small Business Majority.