Patterns of Disparity: Small Business Lending Series

August 6, 2019

Woodstock Institute’s Patterns of Disparity research series examines bank lending to businesses in localities across the country. The purpose is to determine the extent to which banks are meeting the credit needs of businesses, identify racial and economic disparities in access to credit, and provide policy solutions for addressing both discriminatory and predatory business lending practices.

Small, local businesses create economic opportunity within neighborhoods, increase local employment opportunities, and can lead to higher levels of income growth within neighborhoods. For small neighborhood businesses to grow, they need access to capital. Bank loans to businesses are an important element for success because businesses that have access to adequate levels of capital grow more rapidly, hire more workers, and make more investments than businesses that do not have access.

Since the Great Recession, mainstream financial institutions have reduced their small businesses lending, leading some businesses to resort to alternative, non-bank financial technology (fintech) lenders for needed capital. While small businesses could potentially benefit from having an additional source of capital from fintech lenders, an analysis of loan terms and satisfaction surveys of business owners suggest that high interest rates, onerous terms, and relatively poor customer service are unfortunately common among such providers.