New Report Finds 60% Drop in Small Business Lending

San Francisco- December 23- The California Reinvestment Coalition released a report today finding that California’s small businesses are struggling because the nation’s largest banks, who severely restricted small business lending in 2008, continued this trend through 2013, cutting off access to credit. Small businesses normally create two out of every three new jobs in our country but, without bank lending again, we won’t see a strong recovery.

Alan Fisher, Executive Director of the California Reinvestment Coalition, explained: “Taxpayers pumped hundreds of billions of dollars into the major banks but the banks have turned their backs on small businesses and Main Street. Banks are continuing to hoard their money instead of making loans to small businesses-especially those owned by women and people of color.”

Report Finding Include:

Bank Loans Guaranteed by the U.S. Small Business Administration Fall Dramatically:

-There was a 60% drop in the number of small business loans made from FFY 2007 to FFY 2013.
-In FFY 2013, only 2% (96 loans) of SBA 7a loans were made to businesses owned by African-Americans,11% to Latinos (634 loans), and 14% to women (846 loans).
-Credit needs of the smallest small businesses are being ignored: the average SBA 7a loan tripled in size from $165,723 in 2007 to $498,971 in 2013.

Conventional Small Business loans decline for 4 of the 5 largest banks

-For conventional small business loans, four of the five major banks decreased the amount of loans they were making in 2012 by about 2/3 as compared to 2007 in five key counties (Alameda, Fresno, Los Angeles, Sacramento and San Diego).
-US Bank increased its overall small business lending by more than 17% in these counties, while JPMorgan Chase, Wells Fargo, Bank of America, and Citibank all made far fewer loans in 2012.

Practitioners Report Difficulties in Getting Loans, Esp. for Smallest Businesses

-CRC polled our member organizations who work directly with small businesses. Seventy-three percent of respondents stated that banks are doing less lending to small businesses (revenue of less than $1 million annually) in 2013 than 2012.
-Ninety-two percent of them stated that banks are not doing significant lending at the $150,000 or less level.

CRC Recommendations include:

-Bank regulators currently assess a bank’s level of small business lending based on the lending of their peers. Instead, regulators should focus on the level of community credit need as their standard in small business lending evaluation.
-The Consumer Financial Protection Bureau should set out the regulations required in the Wall Street Reform Act for transparent collection of small business data including race and gender so it is transparent to the public
-Banks must strongly support nonprofit community-based lenders and technical assistance providers so that they can build economic vitality in California communities.

To read the full report: Small Business Access to Credit- The Little Engine that Could: If Banks Would Help

Join the conversation: @Calreinvest will share stats from the report under #smallbizca