Small businesses are essential for creating vibrant and self-sustaining communities, but research finds businesses in low-income communities and communities of color consistently struggle to access safe and affordable credit.

At both the federal and state level, Woodstock Institute works to ensure all communities have access to the financial services necessary for building a strong, local business sector.

Small businesses create economic opportunity within neighborhoods, but access to affordable credit is necessary in order to grow, hire more workers, and make investments that help build wealth within communities. Research shows businesses in low-income communities and communities of color in particular face an uphill battle accessing traditional bank loans, which tend to be more transparent and affordable than loans from nonbank, online lenders.

Woodstock Institute’s Patterns of Disparity: Small Business Lending series of reports examines small business lending trends across the country to determine the extent to which banks are meeting the credit needs of businesses, to identify racial and economic disparities in access to credit, and to provide policy recommendations for addressing predatory business lending practices.

For example, in Illinois, we found that over a three-year period, businesses located in low-to-moderate income (LMI) census tracts received only 19.3% of bank loans under $100,000 despite making up 27.0% of all Illinois businesses. Making up this deficit would require 46,648 more loans totaling $618 million.

This research series analyzes small business lending trends in Illinois along with the Chicago, the Los Angeles-San Diego region, Buffalo, New Brunswick, Detroit, Richmond, Fresno, and Minneapolis-St. Paul regions.

Current Efforts

License small business lenders and require basic disclosures
Because many small business owners struggle to obtain traditional bank credit, they are forced to turn to more costly forms of credit, including from online lenders. However, the nonbank small business lenders originating many of these loans are not required to be licensed nor are they required to disclose the annual percentage rate (APR) of their loans. As a result, their borrowers run a greater risk of finding themselves the victim of predatory lending practices.

Woodstock is advocating for the establishment of safeguards for small businesses based on the Small Business Borrowers Bill of Rights (BBOR), which outlines six principles for protecting borrowers from abusive lending practices. We are championing legislation in the Illinois General Assembly that would target predatory lending practices that can ruin a small business and devastate a community.

 

Implement Section 1071 data reporting requirements for small business lenders
Woodstock Institute supports Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which requires lenders to small businesses to collect their lending data and provide it to the Consumer Financial Protection Bureau (CFPB). The CFPB issued a final rule implementing section 1071 in March 2023, but this has yet to take effect due to both ongoing litigation and legislative efforts to block the rule from taking effect.

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Small Business Town Hall in East St. Louis, January 24th, 2024