SAN FRANCISCO - A report released by the California Reinvestment Coalition reveals that small business lending decreased by almost 1.5 million loans and $21 billion in California from 2007 to 2009. Small businesses create more jobs than any other segment of the economy, but without access to bank credit, they are shedding jobs and shutting down. Lending to minority-owned businesses has dropped even more dramatically in this time period—leading to serious implications to the economic well-being of these communities.
“I’ve been in business for thirty years, and when the economy went downhill, my sales slowed down. Without access to a bank loan, I had to lay off thirty people earlier this year. That was half of my workforce!” said Leslie Starus, President & Founder of Foodology, a Sun Valley, California business. “I’ve since received funds from Valley Economic Development Center [a nonprofit lender] and I’m on track to rehire all of those employees.”
The report, “Small Business Access to Credit: The Little Engine that Could” shows a 75 percent drop in small business lending in six California counties: Alameda, Fresno, Los Angeles, Sacramento, San Diego, and Santa Clara. This drop in lending has been even more severe for California’s hardest hit communities.
“Taxpayers bailed out the banks to the tune of $700 billion and were promised that banks would increase lending to small businesses,” said Alan Fisher, Executive Director of the California Reinvestment Coalition. “These small businesses employ half of all Americans, but instead of saving these jobs, banks turned their backs on small businesses and neighborhoods across the state.”
Key findings of the report include:
• Bank of America, CitiBank, and Wells Fargo have decreased small business lending in California by two-thirds between 2007 and 2009—leading to 500,000 less loans for California’s small businesses.
• In California, Small Business Administration (SBA) lending by all banks dropped by 71 percent from 2007 to 2009—representing a loss of $1.2 billion in funding for small businesses. African American-owned businesses experienced an 81 percent drop in access to SBA loans, and Latino-owned businesses experienced an 84 percent drop.
• Bank of America, Wells Fargo, US Bank, Union Bank, and Citibank dropped their SBA lending by 77 percent from 2007 to 2009, but their SBA lending to Latino-owned, African American-owned, and Asian- owned businesses dropped much more dramatically– at 89 percent, 86 percent, and 88 percent, respectively.
• In each of the six counties examined, conventional small business lending dropped by 68-75% percent, and small business lending in low income communities dropped by 70-79%. Bank of America and Citibank decreased their conventional small business lending by more than 80 percent in the six counties. Only US Bank increased their loan volume during the time period.
• In Alameda, San Diego, and Santa Clara, small businesses in low-income communities were hit the hardest; lending in these neighborhoods decreased by 20 percentage points more than the average lending activity in the county.
• There were 25 percent fewer businesses in the City of Los Angeles in 2009 than in 2007; this represents a loss of 150,951 jobs.
• Congress must hold oversight hearings to scrutinize lenders and the regulators who are responsible for overseeing them.
• Banks must improve their marketing and lending to small businesses, particularly those in lower income neighborhoods and those owned by people of color.
• Nonprofit lenders and Community Development Financial Institutions should be authorized to participate in SBA programs and should be allocated funding by Congress and banks.
• Regulators need to ensure banks provide appropriate access to credit for small businesses. This means at least doubling their 2009 lending by 2011.
The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 280 nonprofit organizations and public agencies across the State.