New Report Examines Small Business Lending Disparities

Small businesses in low-income and minority communities struggle to obtain bank loans, unlike businesses in predominately white, high-income areas

LINK TO REPORT

CHICAGO, IL – A new report on small business lending shows business in low- and moderate- income or predominantly minority neighborhoods in Fresno County, California and Minneapolis – St. Paul, Minnesota are less likely to receive bank loans than small businesses in predominantly white and affluent areas. Woodstock Institute’s report, “Patterns of Disparity: Small Business Lending in Fresno and Minneapolis – St. Paul Regions,” finishes a four-part series examining small business owners’ access to traditional forms of credit in eight major metropolitan areas in the United States. This report’s inclusion of Fresno County, California, demonstrates that such lending disparities on the basis of class and race are present in both rural and metropolitan areas. Today’s report finds:

  • Between 2008 and 2015, the number of CRA-reported loans under $100,000 to businesses in the Fresno region dropped by over 45 percent, while the total dollar amount of those loans dropped by over 37 percent. In the Minneapolis-St. Paul region, the number of CRA-reported loans under $100,000 dropped by just under 40 percent between 2008 and 2015, while the total dollar amount of those loans dropped by over 38 percent. 

  • In the Fresno region, businesses in low-income census tracts constituted an average of 16.3 percent of all businesses in the region between 2012 and 2015, but they received only 7.1 percent of CRA-reported bank loans under $100,000 and 7.4 percent of the total dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of all businesses in the Fresno region, they would have received over 4,100 more loans totaling over $56 million more than they received between 2012 and 2015. 

  • In the Minneapolis-St. Paul region, businesses in low-income census tracts constituted an average of 7.6 percent of all businesses in the region between 2012 and 2015, but they received only 3.6 percent of the number of CRA-reported bank loans under $100,000 and 3.2 percent of the dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of all businesses, they would have received over 9,200 more loans totaling over $130 million more than they received between 2012 and 2015. 

  • In the Fresno region, businesses in predominantly minority census tracts constituted an average of 31.0 percent of businesses in the region between 2012 and 2015, but they received only 18.4 percent of the number of CRA-reported loans under $100,000 and only 18.5 percent of the total dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of businesses overall, they would have received just under 5,700 additional loans totaling nearly $79 million between 2012 and 2015.

  • In the Minneapolis-St. Paul region, businesses in majority or predominantly minority census tracts constituted an average of 9.1 percent of businesses in the region between 2012 and 2015, but they received only 5.1 percent of the number of CRA-reported loans under $100,000 and only 4.3 percent of the total dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of businesses overall, they would have received over 9,300 additional loans totaling more than $143 million between 2012 and 2015.

“The disparities in lending to small business borrowers in communities of color identified in this series of reports raise serious fair lending concerns. Banks that make small business loans should require their compliance and fair lending teams to actively take steps to ensure consistency and fairness in the delivery of their small business products and services,” said Dory Rand, President of Woodstock Institute.

Amanda Ballantyne, National Director, Main Street Alliance noted, “Ultimately, everyone in the community loses when small business owners can't receive access to capital because of their skin color or gender. Small businesses are the backbone of a community. They create jobs, revitalize neighborhoods, and pump dollars into the local economy. This report highlights how hard it is for small business owners to get a fair loan and proposes policy solutions that would foster entrepreneurship in cities and towns all over the country.” 

“Small business owners need access to safe, responsible loans in order to start and grow their businesses, but this report highlights that simply isn't happening for small business owners in low-income neighborhoods or communities of color, whether it’s in rural areas like Fresno, or more urban areas,” explained Paulina Gonzalez, executive director of the California Reinvestment Coalition. “Banks have curtailed their small business lending, and that’s having a direct and negative impact on local communities and the strength of our national economy as well. As the CFPB moves forward on rules requiring all small business lenders to report data to the agency, we would hope to see some of these disparities shrink and for access to safe bank loans increase.” 

“In a time when big banks have been busy fighting common sense protections for everyday families like the arbitration rule, this report is especially concerning. By denying small businesses in communities of color fair access to credit, banks are betraying the communities they are legally obligated to serve. It is past time that our elected officials and regulators hold banks accountable for this discriminatory behavior,” said Jessica Juarez Scruggs, Deputy Policy Director of People's Action Institute.

connect

get updates