Patterns of Disparity: Small Business Lending in the Detroit and Richmond Regions

Small Businesses in Lower-income or Minority Neighborhoods are Less Likely to Receive loans than Businesses in Higher-Income or White Neighborhoods

For Immediate Release
August 9, 2017
Contacts: Spencer Cowan (c) 919-619-3579
Brent Adams (o) 312-368-0310 (c) 773-844-5544

Businesses in low- and moderate-income or predominantly minority areas in Detroit, Michigan, and Richmond, Virginia, are less likely to receive small business loans than businesses in more affluent and more white neighborhoods in those metropolitan areas according to a report that Woodstock Institute released today. The report, “Patterns of Disparity: Small Business Lending in the Detroit and Richmond Regions,” examines bank lending to small businesses in those cities. It is the third in a four-part series of research reports examining small business access to bank loans in eight major metropolitan areas. The report finds that:

Small business lending nationally grew rapidly between 2001 and 2007, dropped dramatically between 2007 and 2010, and then increased slowly through 2015 according to data reported under the Community Reinvestment Act (CRA). Overall, the total number of loans in 2015 was down over 56 percent from the peak in 2007 and down by three percent since 2001, while the total dollar amount of loans decreased by 33 percent between 2007 and 2015 and is still slightly lower than the total in 2001.

The number of CRA-reported loans under $100,000 nationally in 2015 remained 58 percent lower than in 2007 and two percent lower than in 2001, while the total dollar amount of those loans decreased nearly 47 percent from its peak in 2007 but rose by 16 percent, from $67.0 billion to $77.9 billion, between 2001 and 2015.

The number of CRA-reported loans nationally to small businesses with gross revenues under $1 million was just 15 percent higher in 2015 than in 2001, but 41 percent lower than the peak in 2007, while the total dollar amount of those loans in 2015 was down over 41 percent from the amount in 2007 and down 21 percent since 2001.

Between 2008 and 2015, the number of CRA-reported loans under $100,000 to businesses in the Detroit region dropped by over 44 percent, while the total dollar amount of those loans dropped by nearly 32 percent.

In the Richmond region, the number of CRA-reported loans under $100,000 dropped by 34 percent between 2008 and 2015, while the total dollar amount of those loans dropped by just under 11 percent. Nationally, businesses in low-income census tracts comprised an average of 9.3 percent of all businesses for the period 2012-2015, but they received only 4.7 percent of CRA-reported bank loans under $100,000 and only 4.9 percent of the total dollar amount of those loans. If those businesses had received loans in proportion to their share of businesses overall, they would have received over 687,600 more loans totaling over $8.8 billion more than they actually received between 2012 and 2015.

In the Detroit region, businesses in low-income census tracts constituted an average of 10.0 percent of all businesses in the region between 2012 and 2015, but they received only 5.0 percent of CRA-reported bank loans under $100,000 and 5.4 percent of the total dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of all businesses in the Detroit region, they would have received over 11,400 more loans totaling nearly $135 million more than they received between 2012 and 2015.

In the Richmond region, businesses in low-income census tracts constituted an average of 9.5 percent of all businesses in the region between 2012 and 2015, but they received only 5.5 percent of the number of CRA-reported bank loans under $100,000 and 6.4 percent of the dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of all businesses, they would have received nearly 2,500 more loans totaling over $28 million more than they received between 2012 and 2015.

In the Detroit region, businesses in predominantly minority census tracts constituted an average of 15.4 percent of businesses in the region between 2012 and 2015, but they received only 7.8 percent of the number of CRA-reported loans under $100,000 and only 7.0 percent of the total dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of businesses overall, they would have received more than 17,000 additional loans totaling nearly $247 million between 2012 and 2015.

In the Richmond region, businesses in predominantly minority census tracts constituted an average of 13.6 percent of businesses in the region between 2012 and 2015, but they received only 7.4 percent of the number of CRA-reported loans under $100,000 and only 7.1 percent of the total dollar amount of those loans during that period. If those businesses had received loans in proportion to their share of businesses overall, they would have received more than 3,800 additional loans totaling over $58.1 million between 2012 and 2015.

“The disparities in lending to small business borrowers in communities of color identified in this series of reports raise serious fair lending concerns. Banks that make small business loans should require their compliance and fair lending teams to actively take steps to ensure consistency and fairness in the delivery of their small business products and services,” said Dory Rand, President of Woodstock Institute.

"Small businesses are the backbone of a community. They create jobs, revitalize neighborhoods, and pump dollars into the local economy," said Amanda Ballantyne, National Director of Main Street Alliance. "This report gives us a very clear picture of how hard it is for small business owners, particularly those of color and in low-income neighborhoods, to start and grow much-needed local businesses, and why regulatory protections like Dodd-Frank are vital for small businesses."

“While banks are posting record profits, their lending to small business languishes. What this report reveals about bank lending to small businesses in communities of color in particular is deeply troubling. Regulators and policymakers need to pay attention and hold banks accountable to their legal responsibilities to fair lending and community reinvestment," said Liz Ryan Murray, Policy Director of People's Action Institute.

“Small business owners of color in Buffalo and New Brunswick are receiving loans at about half the rate one would expect, a troubling statistic that mirrors earlier research on small business lending patterns in Los Angeles and San Diego. This lack of capital restricts an owner’s ability to sustain and to grow their businesses and to create new jobs. Banks need to address the disparities identified in this research and to explain what steps they will be taking to ensure that qualified small business owners aren’t being left behind” explains Paulina Gonzalez, executive director of the California Reinvestment Coalition.