Patterns of Disparity: Small Business Lending in the Chicago and Los Angeles-San Diego Regions

This report examines bank lending to businesses in the Chicago five county region and in the Los Angeles and San Diego region. The purpose is to determine the extent to which banks are meeting the credit needs of businesses throughout those two regions. The focus of the report is on the smaller value loans under $100,000 that are most likely to support smaller, local businesses that provide employment and wealth-building opportunities for local residents.

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.