A California-based based consumer lender that has sometimes tangled with state regulators around the country says it will expand its small-business loan program to Illinois and four other states.
CashCall Inc. of Anaheim, Calif., launched its Entrepreneur Loan program in California last year and recently announced plans to extend the program to Illinois, Ohio, Virginia, South Carolina and North Carolina.
The program offers unsecured business loans of up to $30,000 repayable via monthly fixed payments over terms of up to 10 years. Interest rates range from 44 percent to more than 158 percent, according to the company’s website.
Loans can be arranged online or by phone and money is wired to a borrower’s bank account as quickly as the same day. No business plan, financial statements or tax returns need be submitted.
“Small businesses cannot get the capital they need to grow their businesses because the loan process is broken,” Min Choi, CashCall’s managing director, said. “Banks are unwilling to lend to small businesses, and if they do, the process is long and requires a great deal of documentation.”
The Entrepreneur Loan allows businesses in nearly any industry to obtain capital with a repayment structure that is as flexible as a credit card, CashCall says. There are no prepayment penalties and timely payments help build or repair credit.
Choi says the program is designed to help small businesses that are underserved by traditional banks and those that experience unforeseen emergencies or opportunities.
CashCall saw unmet needs for small business capital in Illinois and the other four states, and more states will be added soon as the company seeks to take the business loan program nationwide, Choi says.
“I would have to say that it is important that business owners and entrepreneurs have as much access as possible to sources of funding but sometimes these types of operations take advantage of people who are in difficult circumstances,” said Patrick McKeehan, director of the Small Business Development Center at Southern Illinois University Edwardsville.
CashCall is owned by J. Paul Reddam, who founded the mortgage lending company DiTech Funding Corp. and sold it to General Motors in 1999. Reddam owned the racehorse, I’ll Have Another, that won last year’s Kentucky Derby and Preakness Stakes.
CashCall and an associated company, Western Sky Financial, have recently been hit with lawsuits or regulatory orders over consumer loan issues by state officials in Illinois, New York, Minnesota and Georgia.
The Illinois Dept. of Financial and Professional Regulation issued a cease-and-desist order against Western Sky in March, alleging that the company was making payday and consumer installment loans to Illinois residents without required licenses. Western Sky, without admitting wrongdoing, entered a settlement agreement with the department in May, agreeing not to offer, make or arrange payday or consumer installment loans in the state.
In the Minnesota litigation, state officials allege that CashCall and subsidiary companies use Western Sky Financial as a front company to try to avoid state licensing, usury and consumer-protection laws. The complaint alleges Western Sky “holds itself out as a tribal entity that purports to be exempt from state consumer protection under the doctrine of tribal sovereign immunity.” Western Sky is not operated by or for the benefit of any Native American tribe, the officials allege.
CashCall agreed to a $1 million settlement with California in 2009 to resolve allegations of “loan shark tactics;” a West Virginia court last year ordered more than $13 million in civil penalties against CashCall and canceled all the company’s outstanding loans in the state.
Choi says CashCall’s differences with regulators have not involved nor had any impact on its business loans program.
Sue Hofer, spokeswoman for the Illinois Dept. of Financial and Professional Regulation, says no license is required for business lending in Illinois. She also notes that Illinois has no usury laws.
McKeehan says, in his opinion, CashCall “really isn’t a good thing for entrepreneurs in Illinois.” He says companies like CashCall provide only “a temporary fix.”
McKeehan adds that nonprofit organizations like Accion in Chicago and St. Louis-based Justine Petersen make loans at much-lower interest rates, and are designed to aid entrepreneurs and small businesses without exploiting them.
“Their goal is not to make money but to help a business succeed and become eligible for a bank loan,” he said.
Entrepreneurs and startups often find themselves in desperate straits, but borrowing to pay current bills usually just puts off troubles if underlying problems aren’t addressed, McKeehan says. “If you don’t change the way you do business, you’re going to be in trouble again.”
Justine Petersen helps small businesses repair and build creditworthiness, says McKeehan, while the Small Business Development Center can help with marketing, cash flow, hiring, training and other issues. Justine Petersen offers micro loans in Madison and St. Clair counties in cooperation with TheBANK of Edwardsville.