Commentary: New York must do more to protect small businesses from predatory loans
- rkutsal
- Jun 5
- 2 min read
Updated: Jun 25
By Eda Henries June 5, 2025
Since the federal Truth in Lending Act doesn’t extend protections for small businesses seeking commercial loans, a handful of states, including New York, have stepped up to help small-business borrowers by requiring certain disclosures. The problem is that New York law does not go far enough.
New York does not prohibit loans containing unfair or abusive terms, and courts have excluded these lending businesses from the existing general prohibition against deceptive practices. These seemingly small omissions are a big problem for small businesses.
I operate a financial advisory firm, and although I work with highly successful small businesses, nearly every one of my clients has had some experience with predatory lenders. This happens because traditional banks have largely exited the small-business lending area, leading to a riskier capital landscape.
When a small-business owner needs a loan today, they often start with a Google search and immediately come across nontraditional lenders that can offer quick cash. But the flip side of that is these loans typically come with very high interest rates and confusing fees that leave a borrower worse off than before. What may look like growth funding or growth capital ends up being a debt trap.
Lenders that prey on small businesses skirt traditional regulations to trap entrepreneurs into a debt cycle. The predatory collections practice, paired with enormous payment requirements and unclear contracts, can result in a loan of less than $200,000 leading to payments of $1,000 per day.
Sometimes, the consequence of a predatory loan is not just the disruption or even closure of a small business. It can also mean personal bankruptcy because many small business owners are tricked or pressured into personally guaranteeing their business loans. Bankruptcy resulting from a predatory loan is not the American Dream.
The situation cries out for federal action: Congress should extend Truth in Lending Act protections to cover commercial loans. But with that action unlikely, and with the Trump administration deemphasizing financial regulation, as evidenced by its gutting of the Consumer Financial Protection Bureau, states like New York must step up and fill in the gaps.
That’s why I urge our state lawmakers to pass state Attorney General Letitia James’ FAIR Business Practices Act, which would ban deceptive, unfair and abusive practices that harm small businesses, including deceptive or opaque interest rates.
New York has taken some strides when it comes to protecting small businesses from predatory loans, but the work is not yet complete. If the state is truly committed to supporting small businesses, it cannot allow bad actors in the lending space to act without guardrails or in abusive, unfair ways. To help our small-business community, New York must protect it from deceptive, unfair and abusive practices by unscrupulous lenders, vendors and other predatory businesses.