The Small Loan Business

The personal finance or small loan business is legally differentiated by the size of the loan from other businesses providing credit facilities. Its legal setting today is the Uniform Small Loan Law (or similar legislation), which regulates the business of lending sums under $300 at rates in excess of the legal contract rate. The degree of risk in the small loan business is shown not by the percentage of loss, which is low, but by the high cost of conducting the business. Losses can be kept down by patient inquiry into the credit standing of applicants and by eternal vigilance in collections, but these necessary operations are costly. The chattel security usually given in small loans would rarely cover a loss, and repossession cases are few. Small loans are usually made to husband and wife, who together constitute a little business enterprise requiring careful evaluation before a loan can be made. Where does the man work and how long has he held his job? What does he earn, what are his expenses, and what can he spare to pay on the loan? Is the family partnership well managed, efficient, and harmonious? Stability of the family unit is necessary to the lender, and this fact is the best answer to the charge that loans to this class of borrowers demoralize family life.