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Featured Article filed under Banking, Independent Business | Written by Stacy Mitchell | No Comments | Updated on Apr 16, 2014

Understanding the Small Business Credit Crunch

The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/understanding-small-business-credit-crunch/

Even as their big competitors are awash in capital, many locally owned businesses are struggling to secure the financing they need to grow.  A new ILSR analysis has found that, since 2000, bank lending to large businesses is up 36 percent, while small business loan volume has fallen 14 percent and  “micro” business loans — those under $100,000 — have plummeted 33 percent.

(The largest corporations do not even need to rely on bank loans, of course, but can finance their growth through the soaring stock and corporate bond markets.)

The problem is not a lack of demand.  In our 2014 Independent Business Survey, 42 percent of business owners that needed a loan in the previous two years reported being unable to obtain one.  Startups, businesses with fewer than 20 employees, and enterprises owned by minorities and women are having an especially difficult time.  Even with the same business characteristics and credit profiles, small businesses owned by African-Americans and Latinos are less likely to be approved for loans, according to one recent study.

One consequence of this credit shortage is that many small businesses are either not adequately capitalized or have been forced to rely on high-cost alternatives, such as credit cards.  Both scenarios make them more vulnerable to failing.

The broader consequences for our economy are significant.  Studies show locally owned businesses are a primary source of net new job creation, contribute to higher median household incomes, and increase social capital.  Yet independent businesses in many sectors are losing market share, while the number of new startups has steadily fallen over the last two decades.  Insufficient capital is a key culprit driving these trends.

To shed light on this problem and help inform policy discussions,  ILSR has published an overview of the small business lending landscape. Among the key takeaways:

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Featured Article filed under Banking | Written by Stacy Mitchell | No Comments | Updated on Nov 27, 2012

Free Checking is Rare at Big Banks, Common at Small

The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/free-checking-rare-big-banks-common-small/

While just 24 percent of big banks offer totally free checking, more than 60 percent of credit unions and small banks do, according to a new report from the U.S. Public Interest Research Group. The report also found that credit unions and small banks have lower fees on average and do a better job of disclosing fees to prospective customers. Continue reading

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Featured Article, ILSR Press Room filed under Banking | Written by admin | No Comments | Updated on Apr 1, 2012

Banking For the Rest of Us

The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/banking-for-the-rest-of-us/

In this cover story for Sojourners Magazine, Stacy Mitchell writes that there is remarkably little evidence to support the idea that bigger banks are superior. They have come to dominate, not because they are more efficient or offer better services, but because they have rigged government policy in their own favor. It’s time for a new set of rules—banking policies for the 99 percent. Continue reading

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Featured Article filed under Banking, Independent Business | Written by Stacy Mitchell | 6 Comments | Updated on Oct 17, 2012

Too Big to Lend

The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/big-lend/

A critical function of our banking system is financing small businesses. But big banks are doing a rotten job of it. At the nation’s largest banks, small business lending has plunged 33% since 2009. Trying to cajole or compel them to do more won’t make much difference because the problem is largely inherent to their scale. Continue reading

Home of the Economy
Featured Article filed under Banking | Written by Stacy Mitchell | 1 Comment | Updated on Sep 15, 2011

How State Banks Bring the Money Home

The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/how-state-banks-bring-money-home/

One of the most significant consequences of the consolidation of banking over the last decade is how much it has hindered the economy’s ability to create jobs. There’s no single solution to this problem, but one of the most promising strategies involves creating state-owned banks that can bolster the lending capacity of local banks, helping them grow and multiply. Continue reading