Consumer Financial Protection Bureau Explores Ways to Assess the Availability of Credit for Small Business

Banks still give far fewer loans to small businesses than they did before the 2008 financial crisis, even though lending to big businesses is up. In a hearing with CFPB Director Richard Cordray, Main Street Alliance small business owners ask why. 



The Consumer Financial Protection Bureau today launched an inquiry into ways to gather and use new and existing information to identify the financing needs of small businesses, especially those owned by women and minorities. This Request for Information can be found here.

“CFPB’s implementation of small business data collection is the type of progressive initiative that helps level the playing field for small businesses, particularly those owned by women and people of color,” said Amanda Ballantyne, National Director of Main Street Alliance. “When Main Street Alliance business owners talk about the type of community and country they want to run their business in, a key criteria is access to capital at fair rates. CFPB is a critical part of ensuring we’re creating an environment that supports small businesses.”

As part of the launch, CFPB Director Richard Cordray and Main Street Alliance small business owners held a field hearing today in Los Angeles focused on small business lending. Main Street Alliance members Makini Howell, owner of Plum Bistro in Seattle, Washington, and Flossie Hall, owner of Healthy Momma in San Diego, California, talked about the difficulties small businesses encounter when it comes to getting loans and lines of credit to start or grow a business.

“I own four successful ventures, with a fifth in the works, and I’ve been in business 13 years,” said Makini Howell, a vegan chef and restaurateur. “But I still have not received a loan through a traditional bank.”

She’s far from alone. National data shows that while bank lending for big businesses is well above the pre-recession peak, small business loans are still down about 20 percent since the financial crisis. Right now, about 30 percent of small businesses are unable to secure a loan.

Without loans from traditional banks, small business owners often turn to unregulated online lenders who have effective interest rates of up to 350 percent, according to the Woodstock Institute, and include junk fees averaging $795 per loan.

“Loans are certainly available,” said Makini Howell. “But it’s money that won’t help you grow your business. It’s money that will help you bankrupt your business.”

The problem is even more pronounced for entrepreneurs in communities of color, especially women. According to a report from the Small Business Administration, African Americans, Hispanics, and women all began their businesses with half the financial capital of white men. A study by the Woodstock Institute also find that businesses in predominantly minority neighborhoods are less than half as likely to have received loans than businesses in white neighborhoods.

“The moral of this story is that business opportunity – especially opportunities for small businesses – often hinges on the availability of financing. People have immense reserves of energy and imagination,” said CFPB Director Richard Cordray. “To make the kind of meaningful contributions they are capable of making to the American economy, small businesses – particularly women-owned and minority-owned businesses – need access to credit. Without it, they cannot take advantage of opportunities to grow.”

Data collection by banks is important to begin addressing the issue. Small businesses typically need access to credit to take advantage of growth opportunities, yet public information on this lending market is inconsistent and incomplete. The CFPB’s Request for Information asks for public feedback to help the Bureau better understand how to bridge this information gap. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to collect data about small business lending to help identify needs and opportunities in the market and to facilitate enforcement of fair lending laws.

“Small businesses fuel America’s economic engine, create jobs, and nurture communities. Yet little is known about how well the lending market serves their financing needs,” said CFPB Director Richard Cordray. “This inquiry will help us learn how we can best fulfill our duty to collect and report information on small business lending.”

CFPB also released a white paper today reviewing the available evidence concerning the small business lending landscape.