OPINION:
Lawmakers across the country are debating new rules for small business financing. As policy is crafted, their decisions should be based on helping entrepreneurs succeed in the real world.
Hispanic entrepreneurs and small business owners are building restaurants, launching service companies, and strengthening local economies throughout America. They need financing tools that work with the realities of running a business, not against them. As someone who works closely with these business owners every day, I see firsthand how access to flexible and transparent capital can shape whether a business is able to grow, hire, and invest in its future.
A recent report from the Federal Reserve Bank of New York offers meaningful insights. The report, “Less for You, More for Me: Credit Reallocation and Rationing Under Usury Limits,” found that strict rate caps did not eliminate credit markets. Instead, credit shifted away from higher-risk borrowers toward those with lower risk. This shift leaves many small businesses with fewer options while doing little to improve delinquency outcomes.
For lawmakers, the takeaway is not that transparency efforts should slow down. The takeaway is that financing rules should reflect how different products actually function and how small business owners evaluate their credit options.
This is especially true for revenue-based financing (RBF). Unlike traditional fixed-payment structures, RBF adjusts repayment based on a business’s sales. For a restaurant navigating seasonal fluctuations or a contractor managing unpredictable project cycles, that flexibility is essential. Payments rise during strong months and ease during slower periods, allowing entrepreneurs to focus on running their businesses instead of struggling under rigid schedules.
This structure is one reason many small business owners increasingly view RBF as a practical and responsible option. It provides fast access to capital, aligns repayment with performance, and allows entrepreneurs to invest in growth opportunities without sacrificing operational stability. In industries such as restaurants, trucking, retail, and trade services, these features are not conveniences. They are necessities.
Flexibility must come with transparency. Responsible funders support disclosures that give business owners a clear understanding of total cost, expected repayment timelines, and how payments may vary over time. Total Cost of Capital disclosures, for example, present information in dollars and real-world payment expectations. This practical information better aligns with how entrepreneurs make decisions.
Recent media coverage about restaurant businesses underscores why responsible standards matter. Some of the practices described, including aggressive withdrawal structures or poorly explained agreements, do not reflect the best practices promoted by responsible lenders. Strong underwriting should focus on sustainable revenue trends and long-term business viability. RBF works best when it supports expansion, equipment upgrades, or predictable cash-flow gaps, not when it is used to mask deeper structural challenges.
These stories also reinforce why clear disclosures are so important. Many disputes arise when business owners do not fully understand the obligations they are entering into. That is precisely what responsible industry standards aim to prevent by emphasizing clarity at the outset and accountability throughout the financing relationship.
The Federal Reserve research reminds us that policies built around a single metric can have unintended consequences. APR can be a useful tool in certain contexts, but it does not always reflect the nature of other financing options. When regulations fail to account for these differences, they risk limiting access to financing options that help entrepreneurs grow their businesses.
Thoughtful policy should promote transparency while preserving innovative financing models that help businesses expand, hire, and serve their communities. RBF has proven to be one of those models. When paired with strong standards and clear disclosures, it can offer entrepreneurs a path forward that is flexible, responsible, and aligned with real-world business success.
Julio Fuentes is President and CEO of the Hispanic Business Alliance.
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