Small Business Loans in NC: Where’s the money going?

We hear a lot about the challenges that small businesses have in getting loans. From our work with Community Development Credit Unions (CDCUs) and Community Development Financial Institutions (CDFIs), we know that these challenges are even greater for small businesses in low-income communities. But we also know that there is capital out there—with banks, credit unions, loan funds, CDFIs, etc— but that is not making it to the small businesses that need it.  This prompted us to ask the question, how much lending is happening in the state, and where is it being invested? Here’s a preview of what we have found.

We looked at the total amount of small business loans (under $100,000) made by large commercial banks (with assets over $1 billion) and CDFIs. Given their size, commercial banks dominate when it comes to the sheer volume of small business loans. But a closer look at where these loans are being made reveals some important differences in where these institutions focus their investments. It turns out that only about 2 percent of the small business loans made by big banks are in low-income census tracts in the state, compared to about 30 percent in upper-income census tracts.  Compare that to CDFIs, which do 7 percent of their small business lending in low-income census tracts and 18 percent in upper-income tracts (see the chart below).

What does this tell us? The larger banks certainly have an important role in fueling small business growth statewide, and both types of institutions do a good deal of lending in upper-income areas. But CDFIs play a specific and important role in low- and moderate- income communities, where many small businesses are unable to secure loans through mainstream banks. The real challenge is connecting small businesses with the institutions that best meet their needs in terms of financing and technical assistance.

The full report will delve deeper into this issue—stay tuned!

– Sadaf Knight, Policy & Research Director