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ComplianceJune 23, 2023

Avoiding the pitfalls of predatory lending in a high-rate environment

By: Jason KellerEmily Redig

(As published in Corporate Compliance Insights)

Safely accessing credit can be easier said than done for growing small businesses

The capital and credit access challenges facing many business owners in today’s turbulent inflationary environment mean that some may pursue questionable financing options offered by unscrupulous parties in the form of predatory lending. Jason Keller and Emily Redig of Wolters Kluwer look at the factors that can lead to predatory practices and how to mitigate those risks to foster compliant, fair lending.

As small-business owners feel the pinch of high costs, inflation and a potential recession, more are increasingly turning to financing. Yet the financing options that are available can pose risks to business owners who fall prey to predatory financing arrangements. How can small-business owners get the financing they need but avoid stepping into a predatory lending situation?

As the U.S. continues to deal with inflation, small businesses play a key role in the communities they serve — as employers, as stewards of regional commerce and as staples of economic development. To meet these objectives and deal with rising costs, small businesses need access to affordable and reliable capital. 

During economic times like these, the small-business ecosystem can become stressed as business owners and entrepreneurs face pressures stemming from increases in their own costs of goods, increases in rental and other fixed expenses such as utilities and the ever-present uncertainties in the labor market. Financing remains available to well-qualified small-business owners, but lenders may be tightening their lending standards due to recessionary concerns, which could reduce access to credit.

Read more on Corporate Compliance Insights website here.

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