Standing Up for North Carolina's Small Businesses: Perspectives from a Mission-Driven Lender
Mark Royster, Jr., Vice President and Chief Credit Officer at Carolina Small Business Development Fund Pursuing a purpose-driven career
After several years working in the banking industry, Mark Royster felt called to do more for North Carolina’s small business owners. “There were more businesses that I wanted to help, but I could not help them," he recalled. Mark’s desire to support those business owners who are underserved by traditional financial institutions led him to Carolina Small Business Development Fund (CSBDF), where he serves as the Senior VP and Chief Credit Officer.
The Carolina Small Business Development Fund is a nonprofit organization guided by the belief that when small businesses succeed, everyone benefits. As a Community Development Financial Institution (CDFI), CSBDF is certified by the U.S. Department of Treasury. As part of this certification, at least 60% of their financing must support small businesses owned by individuals from marginalized groups, which may include low- to moderate-income individuals, people of color, and Hispanic individuals. CDFIs typically lend to businesses that traditional financial institutions deem too “risky,” including start-up businesses and businesses whose owners have thin or non-existent credit histories. Since its founding, CSBDF has provided approximately $110 million to more than 3,000 small business owners and supported more than 4,000 entrepreneurs with education and coaching.
“Many of our small businesses do what they do very well. The baker bakes very well. The landscaper landscapes very well. The truck driver does that very well. Many of them just don't have the time to focus on some of the administrative things, especially the financial components,” Mark explained. “We can help them understand how to build out their balance sheet, their financials, and their income statement. Joining the Carolina Small Business Development Fund was a good fit for me because I wanted to take the time with these small businesses – to understand their stories and partner with them to explore solutions.”
Navigating a changing financing landscape
Earlier on in his career, Mark said that the primary challenge facing business owners was access to capital. In recent years, a rise in unregulated online lenders has changed this calculus. “There are just a lot more lenders that are using online platforms to market to small business owners and they're successful in their marketing,” he explained. “That's a big difference from what you might have seen ten years ago in the marketplace, maybe even five years ago.”
These companies are filling gaps in capital access for business owners who are left out of the traditional banking system, but the financing they offer isn’t always affordable. Unlike consumer products like mortgages or credit cards, small business finance products aren’t required to include important price disclosures, such as annual percentage rate (APR). Research from the Federal Reserve indicates that companies often use metrics that business owners confuse with APR to make the products appear less expensive. For example, Federal Reserve researchers evaluated companies that advertised a “1.15 factor rate,” which, in reality, translates to an undisclosed 70% APR, and a “9% simple interest rate,” which translates to an undisclosed 46% APR.
Because organizations like the Carolina Small Business Development Fund lack the advertising budgets of these unregulated finance companies, business owners often find them after they have already taken on harmful debt. “The downside to that quick money is that often businesses are now unable to afford the cost of repaying that money in the timeframes that they're asked to repay it,” Mark said. “Many times, that results in them going out to get another fast loan to try to cover the first one. And then they find their way to an organization like ours and they're hoping they can get some type of refinance of that debt because it has become too burdensome.”
An increasing number of the business owners seeking financing from his organization are looking to refinance high-cost debt, Mark said, noting one client that they refinanced earlier this year that was paying $2,900 daily to repay two merchant cash advances (MCAs), a common form of alternative online financing. Merchant cash advance providers typically advertise their products as flexible, meaning that if a business had lower sales than projected, they would repay their debt over a longer period of time. In practice, however, business owners often struggle to renegotiate the terms of their merchant cash advance payments. “I got a call recently from a small business that said, ‘We're getting hit over the head for $5,000 a week. We're trying to work with this lender now and the lender has told us it's too early to restructure.’” Mark recalled. “In other words, the lender is telling the business, ‘We haven't gotten enough blood yet. As soon as we get enough blood then maybe we'll talk to you.’”
Advocating for systems change
A key pillar of Carolina Small Business Development Fund’s work is policy and research. This work stems from a recognition that broader systems change is needed to address the challenges that North Carolina’s small business owners face. This includes working in alliance with the North Carolina Rural Center and other organizations in the state to advocate for the passage of a Small Business Truth in Financing Act in North Carolina. This bill would require finance companies to disclose the same information to North Carolina small business owners that has been mandated for consumer financing products under the federal Truth in Lending Act for more than 50 years, including APR.
“We need a set of rules that we all are abiding by when it comes to disclosure, so that North Carolina business owners can understand the true cost of capital and what that means,” Mark explained, adding that the law would help ensure that irresponsible providers, most of which are headquartered in other states, are no longer able to operate in North Carolina. “If you can't follow the rules, then you're not putting money into our small businesses. We want to see these businesses be successful, not destroyed because of some of your financing tactics.”
Are you interested in supporting advocacy efforts for responsible business lending in your state? We want to hear from you! Learn how you can join the movement here.
After several years working in the banking industry, Mark Royster felt called to do more for North Carolina’s small business owners. “There were more businesses that I wanted to help, but I could not help them," he recalled. Mark’s desire to support those business owners who are underserved by traditional financial institutions led him to Carolina Small Business Development Fund (CSBDF), where he serves as the Senior VP and Chief Credit Officer.
The Carolina Small Business Development Fund is a nonprofit organization guided by the belief that when small businesses succeed, everyone benefits. As a Community Development Financial Institution (CDFI), CSBDF is certified by the U.S. Department of Treasury. As part of this certification, at least 60% of their financing must support small businesses owned by individuals from marginalized groups, which may include low- to moderate-income individuals, people of color, and Hispanic individuals. CDFIs typically lend to businesses that traditional financial institutions deem too “risky,” including start-up businesses and businesses whose owners have thin or non-existent credit histories. Since its founding, CSBDF has provided approximately $110 million to more than 3,000 small business owners and supported more than 4,000 entrepreneurs with education and coaching.
“Many of our small businesses do what they do very well. The baker bakes very well. The landscaper landscapes very well. The truck driver does that very well. Many of them just don't have the time to focus on some of the administrative things, especially the financial components,” Mark explained. “We can help them understand how to build out their balance sheet, their financials, and their income statement. Joining the Carolina Small Business Development Fund was a good fit for me because I wanted to take the time with these small businesses – to understand their stories and partner with them to explore solutions.”
Navigating a changing financing landscape
Earlier on in his career, Mark said that the primary challenge facing business owners was access to capital. In recent years, a rise in unregulated online lenders has changed this calculus. “There are just a lot more lenders that are using online platforms to market to small business owners and they're successful in their marketing,” he explained. “That's a big difference from what you might have seen ten years ago in the marketplace, maybe even five years ago.”
These companies are filling gaps in capital access for business owners who are left out of the traditional banking system, but the financing they offer isn’t always affordable. Unlike consumer products like mortgages or credit cards, small business finance products aren’t required to include important price disclosures, such as annual percentage rate (APR). Research from the Federal Reserve indicates that companies often use metrics that business owners confuse with APR to make the products appear less expensive. For example, Federal Reserve researchers evaluated companies that advertised a “1.15 factor rate,” which, in reality, translates to an undisclosed 70% APR, and a “9% simple interest rate,” which translates to an undisclosed 46% APR.
Because organizations like the Carolina Small Business Development Fund lack the advertising budgets of these unregulated finance companies, business owners often find them after they have already taken on harmful debt. “The downside to that quick money is that often businesses are now unable to afford the cost of repaying that money in the timeframes that they're asked to repay it,” Mark said. “Many times, that results in them going out to get another fast loan to try to cover the first one. And then they find their way to an organization like ours and they're hoping they can get some type of refinance of that debt because it has become too burdensome.”
An increasing number of the business owners seeking financing from his organization are looking to refinance high-cost debt, Mark said, noting one client that they refinanced earlier this year that was paying $2,900 daily to repay two merchant cash advances (MCAs), a common form of alternative online financing. Merchant cash advance providers typically advertise their products as flexible, meaning that if a business had lower sales than projected, they would repay their debt over a longer period of time. In practice, however, business owners often struggle to renegotiate the terms of their merchant cash advance payments. “I got a call recently from a small business that said, ‘We're getting hit over the head for $5,000 a week. We're trying to work with this lender now and the lender has told us it's too early to restructure.’” Mark recalled. “In other words, the lender is telling the business, ‘We haven't gotten enough blood yet. As soon as we get enough blood then maybe we'll talk to you.’”
Advocating for systems change
A key pillar of Carolina Small Business Development Fund’s work is policy and research. This work stems from a recognition that broader systems change is needed to address the challenges that North Carolina’s small business owners face. This includes working in alliance with the North Carolina Rural Center and other organizations in the state to advocate for the passage of a Small Business Truth in Financing Act in North Carolina. This bill would require finance companies to disclose the same information to North Carolina small business owners that has been mandated for consumer financing products under the federal Truth in Lending Act for more than 50 years, including APR.
“We need a set of rules that we all are abiding by when it comes to disclosure, so that North Carolina business owners can understand the true cost of capital and what that means,” Mark explained, adding that the law would help ensure that irresponsible providers, most of which are headquartered in other states, are no longer able to operate in North Carolina. “If you can't follow the rules, then you're not putting money into our small businesses. We want to see these businesses be successful, not destroyed because of some of your financing tactics.”
Are you interested in supporting advocacy efforts for responsible business lending in your state? We want to hear from you! Learn how you can join the movement here.
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