December 07, 2002

The California Reinvestment Committee's (CRC) new report spotlights the high barriers faced by California's small and minority-owned businesses. Small Business Access to Bank Credit: the Little Engine that Could, Year Two shows that only one of California's 31 major small business lenders met CRC's 2001 equality benchmark in five counties (Alameda, Fresno, Los Angeles, Sacramento and San Diego).

Bank of America scored the highest, eight on a scale of 13 (61.5%), for lending to local businesses while Citigroup, the world's largest bank, received only two points (15.4%) and American Express received zero (0%).

Eighty-two percent of California's major lenders did not meet the equality benchmark in these counties.

No loans to African Americans: Eight of the thirty-one dominant lenders made no U.S. Small Business Administration loans to African American-owned businesses in California. Last year, all but two of the dominant lenders made such loans.

Credit cards Ignore Small businesses: Four major credit card lenders who did one-quarter of all small business lending in California, Bank One, Capital One, First National Bank of Omaha and GE Capital Finance, did no lending to businesses with revenues less than $1 million in the five counties during 2000 or 2001.

Met SBA Benchmark: Only Washington Mutual Bank met the equality benchmark in U.S. Small Business Administration lending to African American and Latino and Asian American businesses. Five major lenders did so last year. Enormous SBA Loans: The disturbingly large size of U.S. Small Business Administration loans continues to make most SBA loan inaccessible to small businesses. The average California SBA loan was $343,064 in 2002. This is almost six times greater than the thirty-one major lenders' average loan to small businesses of $24,733 in 2001.

"This study highlights the institutional barriers that small and minority-owned businesses face when trying to grow their businesses. Small businesses are critical to economic opportunity and hope in lower income communities; these barriers cut the heart out of the American ideal of equal opportunity," said Alan Fisher, Executive Director of the CRC. "Financial institutions do not offer a level playing field for these essential business owners. Our report makes four key recommendations to remedy this situation."

CRC makes the following recommendations based on this report: Major financial institutions should be scrutinized by federal financial regulators to ensure that there is an even playing field for entrepreneurs of color and business owners in lower income communities.

The U.S. Small Business Administration should limit guaranteed bank lending to $250,000 so this critical taxpayer supported program meets its goal of serving those with greatest needs.

The federal Fair Trade Commission should scrutinize Capital One and other huge credit card lenders that do not lend to smaller businesses yet advertise themselves as small business lenders.

The Federal Reserve should take Regulation B off its dusty back shelf and allow financial institutions to voluntarily collect race data on business borrowers. This will expand opportunity for business owners of color.

The Benchmark of equality measures whether a lender's proportion of conventional small business loans in lower income neighborhoods is equal to the proportion of local businesses that are located in these neighborhoods. It is based on the common sense notion that if 30 percent of all Los Angeles businesses are located in lower income neighborhoods then any lender should originate at least 30 percent of its small business loans in those neighborhoods.

Benchmark Scale: The 13 possible points are one for meeting the equality benchmark for loans less than $100,000 in each of the five counties (total 5), one for meeting the benchmark for lending to businesses with revenues less than $1 million in each county (total 5), and one point each for beating the benchmark in SBA lending to African American, Latino, and Asian American businesses (total 3).

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