Small Businesses Applying for Loans Deserve and Need Transparent Pricing

As individual consumers, we have long had the right to know the true cost of a loan. We shop for credit cards, car loans, and mortgages based, in large part, on the product’s Annual Percentage Rate (APR). But in Illinois, small businesses are still being kept in the dark. Non-bank lenders are not required to disclose APR.

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The Coalition for Small Business Lending Transparency (CSBLT) is a group of small business owners, lenders, nonprofits and advocates working to close this loophole. We believe every entrepreneur deserves the same basic transparency when shopping for financing as consumers have.

Our goal is simple: pass the Small Business Financing Transparency Act (HB744 HA #1) in Illinois to require non-bank lenders to disclose APRs to small business borrowers. With transparency, entrepreneurs can make informed decisions, protect their employees and keep wealth in our communities.

Advocates call for IL small business loan transparency plan

What Consumers See vs. What Small Businesses Get

Source¹

$459M

lost every year by Illinois small businesses to predatory, out-of-state lenders charging sky-high rates without disclosing them²

200-400%

APR is common for loans marketed with “factor rates” or “specified percentages” — but borrowers are never told the actual APRs

$57M

could be saved each year by Hispanic-owned businesses under the same protections²

$61M

could be saved each year by Black-owned businesses in Illinois if lenders were required to disclose APR²

60%

of new jobs are created by small businesses — yet they’re denied the same financial transparency consumers have had since the 1960s³

1 in 4

Business owners say they were harmed by predatory lending within the past year⁴

APR is the missing link

Access our “APR Explained” fact sheet here.

Non-bank lenders often advertise their products using “factor rates,” “simple interest rates,” or “specified percentages,” or tell you to focus only on the “dollar cost.” These numbers sound simple — but they hide the true cost of borrowing.

Think of it this way: No one questions using “miles-per-hour” to understand the speed of a car, even if the person is only driving for thirty minutes. No matter how long you’re driving, you’re still going 60 miles per hour. Whether we’re talking about an hour or a year, the unit of time just enables you to make a comparison. Paying a 350% APR for 6 months is still expensive, just like driving 120 miles-per-hour for thirty minutes is still fast.

When it comes to loans the principle is the same. In order to make an apples-to-apples comparison, small business owners need to know the all-in price, over a common unit of time: the Annualized Percentage Rate.

APR is the gold standard. APR has been the legally required metric to make apples-to-apples comparisons between loans since the 1960s, and is supported for small business lending by Federal Reserve research.

15% SPECIFICED PERCENTAGE

Total repayment amount: $11,600
Fees: $295 origination fee, $395 ACH fee, and $150 UCC termination fee
Term: 101 days
Daily payments
NOT DISCLOSED 367.7% APR⁵

1.15 Factor Rate

Total repayment amount: $59,000
Fees: 2.5% set-up fee; $50/month administrative fee
Term: none (assume repaid in six months)
Daily payments (assume steady payments five days/week)
NOT DISCLOSED 70% APR⁶

4% Fee Rate

Total repayment amount: $56,500
Fee ate: 4% (months 1-2), 1.25% (months 3-6)
Fees: none
Monthly payments
Six-month term
NOT DISCLOSED 45% APR⁶

9% simple interest

Total repayment amount $54,500
Fees: 3% origination fee
Weekly payments
Six-month term
NOT DISCLOSED 46% APR⁶

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Voices for Transparency

“When I needed a loan to keep my doors open, the lender made it sound affordable. Only later did I learn the terms added up to hundreds of percent in interest. If I’d known the APR upfront, I might have made a different decision. Small business owners deserve the same transparency as anyone else taking out a loan.”

CHRISTY, SMALL BUSINESS OWNER

“As a business owner, I know how complicated financing can be. Every entrepreneur should be able to clearly see the real cost of a loan before making such an important decision. Transparency helps all of us avoid hidden traps and build stronger businesses. It is absurd that small businesses, credited with creating the majority of jobs, have been excluded from this basic, critical information.”

JAY GOLTZ, SMALL BUSINESS OWNER

“This is an issue of transparency and equity for small businesses. We will not stop advocating for minority-owned businesses to get access to capital without predatory lenders threatening their futures.”

JAIME DI PAULO, CEO, ILLINOIS HISPANIC CHAMBER OF COMMERCE

“APR, along with the dollar cost, have been the keystone of transparent price disclosure since the 1968 Truth in Lending Act. This bill simply ensures small business owners in Illinois get the same clear information about the price of financing that consumers have had for over 50 years.”

LOUIS CADITZ-PECK, EXECUTIVE DIRECTOR, RESPONSIBLE BUSINESS LENDING COALITION

“Illinois is a better place when small businesses throughout the state build wealth and create jobs that stay in our communities. When predatory lenders from out of state hide their ridiculous costs and strip wealth from our businesses, everyone in Illinois loses. If you want to lend in our state, you should have to clearly disclose the Annual Percentage Rate of the loans you are offering so that our entrepreneurs can make decisions on what is best for their businesses.”

BRAD McCONNELL, CEO, ALLIES FOR COMMUNITY BUSINESS

“In Illinois and nationwide, Small Business Majority’s team regularly encounters small business owners who’ve been caught in a financial deception web because APR disclosure is not universally required for business loans. As a result, many small businesses accept predatory loans that siphon entrepreneurs’ hard-earned money to out-of-state, non-bank lenders, preventing small businesses from investing in their own neighborhoods. Small business owners deserve clear and transparent lending terms that include APR so they can more easily select financial products that will help them build wealth for themselves and their workers, as well as for communities throughout Illinois.”

GERI AGLIPAY, SENIOR FELLOW, SMALL BUSINESS MAJORITY

“Small businesses in Black and Brown neighborhoods often turn to online lenders who conceal the cost of their loans and may charge as much as a payday lender. Requiring these lenders to disclose their APRs at least provides borrowers with knowledge about what they’re getting into. Transparency is a matter of economic justice.”

SENATOR CHRISTOPHER BELT

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United for Transparent Lending

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Take Action For Transparent Lending

Small businesses deserve and need the same transparency as consumers. Together, we can close the loophole excluding small businesses from transparency, protect entrepreneurs, and keep wealth in Illinois communities. Add your voice and urge your lawmaker to act today.

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Frequently Asked Questions

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What is APR and why does it matter?

APR, or Annual Percentage Rate, shows the cost of a loan, including fees and interest, over the same period of time–the year. This helps people make an apples-to-apples price comparison between financing options. Without APR, small businesses are left comparing “factor rates” or other “rates” that Federal Reserve research shows confuse many borrowers.

Don’t small businesses know what they’re signing up for?

Not always. Many entrepreneurs run very small operations. They don’t have teams of lawyers or accountants to parse confusing contracts. Transparency ensures that all small business owners — no matter their size — can make informed financial decisions.

Polling from Small Business Majority ⁷shows that small businesses overwhelmingly favor a “truth in lending act” for small business financing to ensure that fees and terms, such as APR, are transparently disclosed in commercial loan products.

Will this law limit access to capital?

No. This bill doesn’t ban any product or cap interest rates — it only requires lenders to disclose the true cost in a transparent way. Data from states like New York and California shows that transparency has not restricted access to financing.

Do other states already have this law?

Yes. New York and California already require APR disclosure for small business loans. Illinois has some of the strongest consumer financial protections of any state. Now, because of the economic uncertainty resulting from federal policy, states like Illinois have an even greater responsibility to stand up for small businesses that are already under tremendous pressure.

Why is APR considered a critical part of transparency?

APR has been the keystone of price transparency in financing since the 1968 Truth in Lending Act. APR is just: what you pay, as a percentage of how much financing you get to use, over a common unit of time–the year.

You can think of APR as the “unit price” for financing. Back in 1967, Senator William Proxmire explained the importance of APR in Truth in Lending:

“Just as the consumer is told the price of gasoline per gallon, so must the buyer of credit be told the ‘unit price.’ Historically in our society that unit price for credit has been the annual rate of interest or finance charge applied to the unpaid balance of the debt.”

In fact, the Federal Reserve research calls financing products that do not disclose APRs, “higher-cost and less-transparent,” The Federal Reserve has published 5 studies showing that, in the absence of transparent APR disclosure, small business owners are being misled into unnecessarily expensive financing products. (2022, 2019, 2019, 2018, 2015)

These are some of the reasons why this bill is supported by small business groups, lenders, civil rights groups, and nearly everyone other than those pushing “higher-cost and less-transparent credit products,” to use the Federal Reserve’s words.

Shouldn't disclosing "total cost of capital" be enough?

“Total cost” or “dollar cost” only tells part of the story. Two loans might both cost $10,000. But paying $10,000 to have a loan for several years is not the same price as paying $10,000 to have the loan for only a few months.

Think of it this way: It would be like comparing job offers from two companies, where one tells you that you’ll be paid $5,000 per month, and the other tells you you’ll be paid $50,000 per year. $50,000 is a lot of money, so you’re inclined to take this job. But that would be a mistake because if you annualized the other job offer, it would pay $60,000 per year. APR helps you compare the dollar amount over the same period of time.

We expect to know the APRs of our car loan, our student loan, our credit cards, and our mortgage. Similarly, small business owners should be entitled to know the APR of the loans that are offered to them.

What about loans shorter than a year? Isn’t an annual rate inappropriate?

This question is meant to muddy the waters of an issue that is crystal clear. When we use “miles-per-hour,” it doesn’t matter whether you’re driving for less than an hour or more than an hour. You’re still going 60 miles per hour. Whether we’re talking about an hour or a year, the unit of time just enables you to make a comparison. Paying a 350% APR for 6 months is still expensive.