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Jan10

When Credit Markets Froze, This Microlender Remained Open for Business

Posted on Jan 10, 2011 by

 

The California Reinvestment Coalition (CRC) has just released a report analyzing data on bank lending to small businesses in California between 2007 and 2009.  CRC relied on data from the Federal Financial Institutions Examinations Council and the United States Small Business Administration (SBA), and looked at lending by the five largest banks in the State. 

 

That there was and is a credit crunch for small businesses is not news.  But the magnitude of the decline in bank lending to small businesses between 2007 and 2009 is quite breathtaking.  SBA lending among the banks CRC looked at dropped by a whopping 77% between 2007 and 2009, and the drop was even more pronounced for loans to minority-owned businesses, declining by about 88%.  
 

 

"That there was and is a credit crunch for small businesses is not news. But the magnitude of the decline ... is quite breathtaking."

 

It is not my job to advise large financial institutions on how to run their businesses, and these same institutions have been very important investors and partners for Opportunity Fund for many years.  But it is good to have this data, because it bears out what we have been saying throughout the financial crisis and concomitant credit crunch:  Opportunity Fund’s mission is vitally important, and small businesses need us now more than ever.

 

"Opportunity Fund's mission is vitally important, and small businesses need us now more than ever."

 

I’m pleased to report that throughout the Great Recession, Opportunity Fund did not turn away from the markets we serve.  We increased our lending to the Bay Area small businesses by 56%, doing nearly $1 million more in new loans in FY2010 than we did in FY2007.  And the majority of our loans continue to go to minority-owned businesses.  Minority-owned businesses are particularly critical to struggling neighborhoods and the economic recovery, because they are more likely to hire people of color who are experiencing much higher unemployment rates in this economy.  For example, William Ortiz got a $10,000 loan from us during the depths of the credit crunch, helping him expand his San Francisco parking lot company and hire 30 employees who are mostly immigrants or ethnic minorities.

 

"[During the credit crunch] Opportunity Fund increased our lending to the Bay Area's small businesses by 56%, doing nearly $1 million more in new loans in FY2010 than we did in FY2007."

 


We used a marketing tagline to promote a conference we convened last year (Microfinance USA) – “When America's credit markets froze, the nation’s microlenders remained open for business.”  This new CRC data goes to show the substance behind those words. When our credit markets came to a near halt and major lenders faced their own crises, microlenders were in a position to continue lending and in our case, lend more than ever. 

 

Shockingly, the conventional wisdom coming out of Washington is that the newly-elected Congress is likely to cut funding for the CDFI Fund and SBA programs that support micro and small business.  These two sources of federal financing are some of the most efficient ways we have to stimulate the economy.  Please raise your voice to support continued funding for these important policy tools.

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