CRC Speaks about Small Biz Owners and Financing Challenges at CFPB CAB Hearing

Paula

Paula Tejada, owner of Chile Lindo, speaks to CFPB Director Cordray and Assistant Director Grady Hedgespeth about being a small biz owner in the Mission District of San Francisco. Learn about the CFPB’s tour here.

Today, Paulina Gonzalez, the executive director of the California Reinvestment Coalition, will be speaking at the Consumer Financial Protection Bureau’s Consumer Advisory Board meeting about the challenges that Small Business owners face in obtaining safe, transparent loans to start and grow their businesses.  CRC is strongly supportive of the CFPB’s effort to implement the 1071 data collection called for under the Dodd Frank financial reform bill.

Gonzalez’ presentation highlights how loans to smaller small banks have decreased; how small business owners are being pushed to credit cards (instead of small business loans); and how some predatory lenders are filling in the gaps.

CRC has been monitoring access to loans for small business owners in California for a number of years, and the results have been especially disappointing:

2007-2009: According to CRC’s analysis and report (The Little Engine that Could), SBA lending to California’s minority-owned businesses dropped by 81 percent for African American-owned businesses and 84 percent for Latino-owned businesses. See report: Small Business Access to Credit

2007-2013: According to CRC’s analysis of SBA data, small business lending, especially to African Americans and Latinos dropped dramatically from 2007 to 2013.

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.