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Is Stingy Lending Holding Back Small Business?

A new report shows small-business lending has not fully rebounded after its drastic drop during the Great Recession. (Aranami/Flickr)
A new report shows small-business lending has not fully rebounded after its drastic drop during the Great Recession. (Aranami/Flickr)
January 25, 2017

LINCOLN, Neb. – Many of the nearly 170,000 small businesses in Nebraska count on capital from bank loans to grow. But a new report released Tuesday by the Woodstock Institute finds the number of bank loans issued to small businesses is on the decrease.

Specifically, small-business loans in Chicago and Los Angeles were studied, but Michelle Sternthal, the director of policy and government affairs for the Main Street Alliance, a network of small-business coalitions, says it's indicative of a national trend.

"Small businesses are really struggling to access capital," she said. "Bank loans are necessary for community development, businesses without adequate access to capital fail to grow, can't hire workers, cannot invest in expanding the business. And so, we see this as a massive problem."

According to data reported under the Community Reinvestment Act, small-business lending dropped drastically during the Great Recession, and has increased slowly since then. The number of loans in 2014 was down nearly 60 percent from the peak in 2007. Small businesses in Nebraska employ about 390,000 people.

In addition to a decrease in the number of loans, the report says across the country, businesses in low-income census tracts made up almost 10 percent of all businesses, but received less than five percent of the loans reported. Sternthal says this disparity adds to the challenge of economic growth.

"So, the areas that most need the infusion of resources and the entrepreneurship are the very ones that are being starved of this valuable capital," she explained.

If loans were increased in low-income areas, the report estimates the businesses it studied would have received $8 billion more in capital. The report urges regulators in charge of making sure banks comply with the Community Reinvestment Act to take a closer look at the types of loans banks are offering to meet the needs of small businesses.

Mary Kuhlman, Public News Service - NE