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Bank Lending and the Financial Crisis

Bank Lending to Rural vs. Urban Firms in the United States Before, During, and After the Great Financial Crisis

The U.S. Small Business Administration Office of Advocacy

First published May 2020

The ability of small businesses to access financing continues to be one of the most pressing policy issues in the U.S. Given the well-documented role of small businesses in creating jobs and economic growth, policymakers and regulators must act to ensure that creditworthy firms and their owners are able to obtain sufficient financing for the businesses to survive economic downturns and grow during other periods. Without adequate financing, small businesses will not be able to continue their critical contributions to economic growth and employment.

The data on small-business lending collected by bank regulators to comply with the Community Reinvestment Act (CRA) of 1977 provides analysts, policymakers, regulators, and the public with information on how much lending each bank is doing in each neighborhood. The first round of CRA data was released in 1997 and provides information on bank lending during the calendar year 1996, and subsequent rounds have been released each year through 2016. With information on both the amount and number of loans made by banks in each Census tract, these data provide incredibly detailed information on the status of bank lending to small businesses in more than 30,000 neighborhoods. Only banks with assets above a threshold are subject to the CRA reporting requirements. Although almost 90 percent of banks are exempt, those banks account for only about 25 percent of total assets.

This report provides an analysis of how lending changed overall and in rural vs. urban areas before, during, and after the financial crisis of 2008-2010. The analysis shows that rural firms have poorer access to bank credit than their urban counterparts in terms of both the amount and number of loans and that this situation has deteriorated, rather than improved during the post-crisis years of 2011-2016.

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