SB 197 Increases Access to Affordable Capital

Over the weekend, California Governor Brown signed into law SB 197, which increases access to affordable capital for California’s 3.6 million small and microbusiness owners. The law helps small business owners to learn about responsible financing options at reasonable rates that help build their credit. This is especially important for women-owned and minority-owned firms, which have the greatest difficulty obtaining financing.

Word-of-mouth is a key marketing strategy for reaching small business owners, especially in underbanked immigrant and minority communities; referral fees for successful loans encourage word-of-mouth. Before SB 197, the California State Lender’s Law prohibited licensed lenders – including mission-driven microlenders who structure their products to ensure business owners build credit – from paying referral fees to individuals or small businesses that do not have a state-issued broker’s license. Most referrers are not licensed because of high licensing costs, including local tax preparers/bookkeepers, nonprofits, or other business owners who have received a loan. Meanwhile, alternative lenders and banks commonly use brokers to reach potential customers. Broker referrals account for upwards of 45% of the financing done by alternative lenders.

SB197 helps responsible lending products become more competitive with other predatory financing options, such as merchant cash advances, by removing a competitive disadvantage that affected licensed commercial lenders in California, like Opportunity Fund, the lending arm of Accion Opportunity Fund, and many members of the California Association of Microenterprise Opportunity (CAMEO), allowing them to pay referral fees to those with whom they do business.

“With a proliferation of online and alternative lenders, small businesses need better information about the most appropriate financing available to them,” said Claudia Viek, Chief Executive Officer of CAMEO, a statewide network of mission-driven entrepreneurial training programs and microlenders. “This bill is crucial to the 3.6 million California small and microbusinesses that are looking for affordable capital to grow their businesses by allowing responsible lenders to more easily get the word out about their loan products.”

Eric Weaver, Founder and CEO of Opportunity Fund, also emphasized the benefits to small businesses. “This means that Opportunity Fund, a mission-based nonprofit lender, can now compete against predatory lenders. Even though we’re the largest nonprofit lender to small businesses in California, it’s still a bit like David and Goliath trying to reach small business owners with the affordable credit we offer. But SB197 changes that by providing us with a new slingshot that levels the playing field.”

“It’s a bit like David and Goliath trying to reach small business owners with the affordable credit we offer. SB197 changes that by providing us with a new slingshot that levels the playing field.” – Opportunity Fund CEO Eric Weaver

CAMEO and Opportunity Fund co-sponsored the bill, which was authored by Senator Marty Block (D-San Diego). It received unanimous support from the Senate Banking and Financial Institutions Committee and full senate.

“SB 197 levels the playing field for California lenders and also helps creates greater access to capital for small businesses,” said Block, Chair of the Senate Banking and Financial Institutions Committee.