New bill caps ALL loans at 36% APR

1. What happens to business lending demand when 40+ million consumer borrowers lose credit access overnight?

The Great Migration: The Consumer Credit Collapse and the Business Lending Demand Surge

The elimination of high-APR consumer credit products will not eliminate the underlying financial needs of the borrowers who rely on them. Instead, it will trigger a mass migration of demand from the now-defunct consumer market directly into the alternative business lending space.

Small business owners, microentrepreneurs, and gig workers who previously used personal cash advances, payday loans, or title loans to manage cash flow volatility will be forced to seek commercial credit products as their new lifeline.

Demand Profile of the "Credit Refugee" 

The new wave of applicants will be fundamentally different from the traditional commercial borrower. They will be higher-risk, often lacking the formal documentation (tax returns, detailed profit-and-loss statements) required even by flexible alternative lenders. Their immediate past credit history may show defaults or delinquencies on the very consumer products that were just outlawed, making them appear even riskier under standard underwriting models.

• A restaurant owner who used a personal cash advance to cover a payroll shortfall will now seek a merchant cash advance (MCA). Their need is immediate, driven by operational necessity, not strategic growth. The demand is for speed and access, not necessarily the lowest price point.

• A contractor who relied on a car title loan for an emergency equipment repair will now require short-term equipment financing or an MCA. They are solving a problem that, if unaddressed, halts revenue generation entirely.

• An analysis of consumer lending in Illinois after its 36% cap was imposed confirms this reality. A survey of former short-term, small-dollar loan users found that the majority struggled to pay bills and were unable to access credit. They were left with poor alternatives, including late bill payments and skipping vital expenses—a clear indicator of unresolved, acute financial need that will seek an outlet.

Pricing for Unprecedented Risk

This migration presents a severe pricing challenge. Traditional business loan pricing models are unprepared for this influx of borrowers who blur the lines between personal and commercial finance. Pricing for this new cohort must account for:

• Increased Default Probability: These borrowers have already been legislated out of one credit market due to their perceived risk profile. The data from markets where rate caps have been imposed show that such caps decrease credit availability specifically for high-risk, subprime borrowers. When they enter the business lending market, that underlying risk remains.

• Lack of Traditional Data: Many of these entrepreneurs operate in a cash-heavy or informal economy. Underwriting cannot rely on credit scores or tax returns alone. Lenders like On Deck Capital have pioneered models based on real-time cash flow analysis from bank statements and credit card sales volume, which will become the industry standard for this segment.

• Urgency Premium: The demand from these "credit refugees" is inelastic. They need capital immediately to sustain operations. The pricing model can and must reflect the value of speed and accessibility, which is the core value proposition of alternative lenders. The market will support higher factor rates for MCAs and shorter-term loans because the alternative is business failure.

• Operational Strain and Product Adaptation: The sheer volume of this new demand will strain existing origination and underwriting systems. Lenders must prepare for a flood of smaller-dollar, higher-frequency applications.

  • The typical loan sought will be smaller, mirroring the outlawed consumer products. For instance, lenders like Progreso Financiero and Upstart have demonstrated significant volume in small-dollar loans around $1,000. This is the scale of demand to expect.

  • This necessitates a shift toward more automated, transactional underwriting for smaller amounts, while reserving high-touch, relationship-based underwriting for larger, more complex deals. The market will bifurcate, and lenders must be equipped to operate in both segments efficiently.

2. Which alternative business lenders are already pivoting their models, and what specific strategies are working?

The Pivot Playbook: Current Strategies of Leading Alternative Lenders

The most forward-thinking lenders are not waiting for this bill to become law. They are already diversifying their product suites and funding models to build resilience against regulatory shocks and capture emerging market segments.

OneMain Financial 

OneMain Financial provides a clear playbook. While maintaining its core higher-APR installment loan business, it has aggressively expanded into auto finance and credit cards (the BrightWay card). By doing so, it has created multiple revenue streams, some of which operate comfortably below a 36% APR threshold, while also capturing a wider spectrum of borrower needs.

Oportun

Oportun has successfully integrated a secured personal loan product using car titles, which demonstrates significantly better credit performance—NCO rates are approximately 500 basis points lower than for their unsecured product. This strategy allows them to serve near-prime customers at potentially lower rates while mitigating risk with collateral, a model directly transferable to small business asset-based lending.

Bank Partnerships and Charter Applications

The smartest players are securing their funding and regulatory standing by moving closer to the banking system.

• OneMain has filed an application to form an industrial loan company (ILC). An ILC charter provides access to diversified, lower-cost funding (like deposits) and simplifies the operating model, especially for multi-state operations, creating a significant competitive advantage over non-bank lenders reliant on warehouse lines and the ABS market.

• Fintechs like Pagaya are succeeding through deep integration with partners like Klarna and banking core providers. Pagaya operates as a "second-look" engine, approving applicants rejected by the primary lender. This model allows banks and larger fintechs to serve a broader market without taking on the direct balance sheet risk, while Pagaya monetizes a high volume of applications that would otherwise be lost. This is the future of bank/fintech collaboration.

Shifting to Longer-Term, Larger-Principal Products

There is a clear trend toward offering larger, longer-term loans to make the unit economics work under tighter margin pressure.

• The academic study on the impact of Illinois's 36% rate cap provides definitive evidence: the average loan size for subprime borrowers increased by 40% after the cap was imposed. Lenders were forced to originate larger loans to cover fixed administrative costs.

• This is already visible in the cash advance space. Brigit is piloting a line of credit up to $500 with a 6-9 month term, a direct move away from its traditional short-term advance model to compete with small-dollar installment loans from players like Upstart. This is a clear strategic pivot toward longer duration and higher principal to ensure profitability.

• While we haven't seen a mass exodus from the MCA space, the underlying logic holds. Providers will increasingly offer term loan alternatives alongside MCAs to capture borrowers who can qualify for and service longer-term debt, thereby creating a more stable and predictable revenue stream.

3. What's the realistic timeline for business lending caps to follow consumer caps, and what triggers should lenders watch?

The Regulatory Domino Effect: The Timeline for Business Lending Caps

The pattern is historically consistent: consumer lending is the first battleground for rate caps, and small business lending is the next. The passage of a national 36% consumer APR cap would create immense political momentum and a clear precedent for extending similar "protections" to small businesses. The timeline is not a matter of if, but when.

The Inevitable Sequel: The "Small Business Borrower Protection Act":

The same coalition of consumer advocates and senators—led by figures like Durbin, Whitehouse, and Blumenthal—will argue that small business owners, particularly sole proprietors and microentrepreneurs, are just as vulnerable as individual consumers and deserve equal protection.

Their argument will be bolstered by the very market shift we anticipate: as desperate "credit refugees" flood the business lending space, stories of high-cost MCAs and other products will become media and legislative fodder. We should anticipate a bill targeting business lending within 18 to 36 months following the enactment of the consumer cap.

• The legislative framework will mirror the consumer bill. It will likely use an "all-in" APR calculation designed to capture all fees associated with MCAs, factoring, and other alternative products, effectively rendering many of them unprofitable.

• The narrative is predictable. Proponents will highlight anecdotes of business owners trapped in debt cycles, mirroring the exact language currently used to describe payday loan borrowers.

Triggers and Early Warning Signs

We must monitor specific indicators that signal the legislative tide is turning against business lending.

• CFPB Rulemaking and Enforcement: Watch for the CFPB to use its authority to expand its oversight. The Bureau has already begun this process, for instance, by clarifying that franchise financing falls under the Equal Credit Opportunity Act (ECOA). The next logical step is for the CFPB to begin defining certain business lending practices as "unfair, deceptive, or abusive acts or practices" (UDAAP). An uptick in CFPB enforcement actions against business lenders is a five-alarm fire.

• State-Level Legislation: The most immediate threat will come from progressive states acting as policy laboratories. States like California, New York, and Illinois, which have already imposed strict consumer rate caps or disclosure requirements for commercial finance, will be the first to propose explicit APR caps on business loans. The passage of such a law in a major state creates a powerful precedent for federal action.

• Congressional Hearings: The first sign of federal movement will be hearings in the Senate Banking and House Financial Services Committees. When witnesses from organizations like the Center for Responsible Lending begin testifying about the "predatory" nature of MCAs with the same fervor they currently reserve for payday loans, the legislative countdown has begun.

The window to adapt is closing. Diversifying products, securing stable funding, and refining underwriting models for new borrowers are essential for survival.

Our Opinion

The Protecting Consumers from Unreasonable Credit Rates Act of 2025 is a significant change that will greatly alter the way alternative lending works.

Companies that proactively pivot toward business lending, develop sophisticated compliance capabilities, and leverage technology-enabled underwriting will capture disproportionate market share in the emerging regulatory environment.

The elimination of $30-50 billion in consumer lending markets creates immediate opportunities in the $2.5 trillion small business lending market growing at double-digit rates.

Early movers implementing bank partnership strategies, pursuing charter applications, and developing business lending capabilities position themselves for sustained competitive advantages in this transformed marketplace.

For alternative business lending executives, the regulatory transformation demands immediate strategic planning and execution across compliance infrastructure, technology capabilities, funding diversification, and market positioning.

The companies that successfully navigate this transition will emerge as dominant players in the next decade of American lending markets.

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