California Reinvestment Coalition

Small Business

Background:Small businesses create two out of every three new jobs in this country and are widely acknowledged to be the engine of economic growth. 

New Challenges for Small Business Owners and Lending: Since the mortgage meltdown, bank financing for small businesses has shrunk dramatically- especially smaller small businesses, and for small businesses owned by women and people of color. Instead of making actual small business loans, banks are also pushing small business owners towards credit cards. As an example, read CRC's recent comment letter on Chase's CRA exam, highlighting that the majority of their small business lending in California was actually via credit cards. 

We are also concerned about issues created by "innovative" fintech lenders who are entering the small business loan void created by banks not lending. Opportunity Fund, a Community Development Financial Institution (CDFI) recently documented that some fintech lenders are orginating predatory loans that are sinking small businesses. 

Recent bank partnerships with fintech also raises a hosts of concerns- for example, JP Morgan's partnership with OnDeck (whose average APR for a small business loan ranged from 8.9 to 98.4%, according to the Wall Street Journal). 

The California Reinvestment Coalition (CRC) sees the support and growth of small businesses in low-income communities and communities of color as a critical focus of its work. These businesses, often minority- and women-owned, encounter much greater difficulties receiving conventional loans from banks than larger businesses or those located in wealthy communities. And yet, they are even more important in low-income communities and communities of color because of the important job creating and asset creating role small businesses can play.

To read more about CRC's latest small business report, please see our December 2013 press release: New Report Finds 60% Drop in Small Business Lending

In this work, CRC has focused on three particular issues.

  • Support for nonprofit organizations that provide technical assistance to small businesses. Businesses often do not have the resources to get critical assistance to bolster their marketing, human resources and other business components. As a result of dialog with CRC members, Wells Fargo and Comerica Banks have put in place grant initiatives that build the capacity of these nonprofit organizations statewide.
  • Investments to build the capacity of nonprofit community development corporations and financial institutions that offer more accessible credit to these critical businesses. This has been critical because banks have essentially stopped lending to smaller businesses and loans of $250,000 or less.
  • Making bank small business loan underwriting more flexible and gaining access to business loan denials where community lenders may be able to make the loan.

You can read CRC's previous reports on small business lending here:

December 2010: Small Business Access to Credit:The Little Engine that Could

March 2007: Small Business Access to Bank Credit:The Little Engine that Could

December 2003: Small Business Access to Bank Credit: The Little Engine that Could

  • Small businesses continue to have trouble accessing capital that can help them improve their businesses and create jobs.
  • 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.