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Small Business Access to Credit

Small-Business-Access-to-CreditSmall Business Access to Credit – The Little Engine that Could: If Banks Helped
California Reinvestment Coalition

First published December 2013

California’s “great recession” continues to damage the lives of families and inhibit recovery for neighborhoods and their small businesses. The California Reinvestment Coalition’s (CRC) 2010 economic development report documented a dramatic two-thirds plunge in critical bank lending to California small businesses between 2007 and 2009; businesses that are universally seen as the engine of economic recovery. This report unveils the appalling continuing reality that today’s bank lending to small businesses shows only the barest improvement since 2009.

Thriving small businesses are universally agreed to hold the key to strong economic recovery. While the economy is growing today, it is growing at an extremely slow pace which portends a long road to recovery with vast damage to families, neighborhoods and the country’s future. While Wall Street and corporate CEO’s are doing extremely well, Main Street and its small businesses are struggling to survive. The Federal Reserve and US Treasury have been subsidizing the banks with low interest rates and other programs but this has had no significant positive impact on bank lending to small businesses.

Why are small businesses critical to the economic growth of the country? Small businesses hire and pay taxes locally. Minority-owned and women-owned businesses are more likely to hire people from their neighborhoods and are an avenue to build wealth for their communities. Strong business districts create more employment, stable housing prices and diverse opportunity in their neighborhoods.

Why are banks so key to the recovery? While major corporations turn to Wall Street, small businesses depend on banks loans for working capital and expansion funds. Banks tightened their underwriting of small business loans at the beginning of the recession and have not significantly loosened them since. After seven years of attempted recovery, bank lending to California small businesses is still at only one-third the number of loans in 2007.

How accessible is credit for small businesses owned by people of color and women? These businesses are struggling even more mightily to get bank loans. Loans to women-owned businesses dropped from roughly twenty percent of all SBA 7a loans1 in federal fiscal year 2007 to just above fourteen percent in 2013. Thirty percent of California businesses are owned by women which indicates that their portion of SBA lending should be twice the current level.

SBA 7a Loans to African American-owned businesses dropped from more than nine percent to below six percent in the same period. Latino-owned business lending dropped from more than fourteen percent to under eleven percent. In 2007, there were 1,355 loans to African American- owned businesses but in 2013 only 96 loans to these 137,000 California firms were made.

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