It seems even entrepreneurs are utilizing bad credit loans to cover their expenses.
Whenever the media publish articles pertaining to payday loans, it’s usually a profile of impoverished consumers in financial destitute turning to the short-term, high-interest option. Politicians and consumer advocacy organizations regularly call for legislation to rein in predatory payday loan stores in order to shield consumers from this alternative product.
But what about small- and medium-sized business owners? It looks like a growing number of self-employed entrepreneurs are taking advantage of payday loans for their own operations.
SMBs ‘Stacking’ Payday Loans
According to a new study by nonprofit micro finance provider Opportunity Fund, many small businesses received payday loans from alternative finance lenders, and the average annual percentage rates on these loans was 94 percent.
Speaking with 104 SMBs and their respective owners, the study shed light on the fact that it isn’t just consumers that are utilizing bad credit personal loan lenders anymore, but also American business professionals.
The study discovered that they collectively carried 150 loans. What was most startling from the report was that more than one-quarter of the survey participants were “stacking” their payday loans from multiple lenders. What’s also turning heads is how much these companies are paying.
Ostensibly, the businesses’ average monthly payments were 178 percent of their monthly income, and close to half (47 percent) of the businesses were focusing on all of their monthly earnings to pay back the debt. These aren’t good numbers for SMBs already struggling in this economy.
The report comes as a new study from the United Kingdom found that the self-employed are having to use payday loans to cover their late payments.
UK Freelancers Need Financial Help
The study, which was conducted by London finance start-up Ormsby Street, found that more than one-third (36 percent) of freelancers had to borrow from a payday loan store to pay for their overdue bills. Another 46 percent stress daily about not having enough money to live on.
In total, British freelancers maintained an average of £5,431.03 ($7,828.03) in late payments.
“Every freelancer knows that late invoice payment is one of the biggest frustrations, impacting cash-flow and causing much stress, from paying the mortgage to having enough money to live on,” said Martin Campbell, Managing Director, Ormsby Street, in a statement. “For a freelancer to be owed more than £5,000 is clearly unacceptable and threatens the emerging freelance economy in the UK, which brings flexibility and work / life balance to so many.”
For freelancers, it’s a common theme to not have enough funds to pay the rent, light bill or car payment. With dry spells, clients not paying on time and low fees to compete in a global market, many freelancers spiral into debt, who then must turn to payday loan businesses.
Ultimately, both studies reveal one thing: there is an opportunity for businesses in the finance industry to serve SMBs and freelancers alike when they’re in need of cash. The struggles that SMBs and freelancers face are immense, and they’d rather use a bank than a payday loan store.