Big Drop in Bank Lending to California Small Businesses
Just when you thought that big banks were flush with cash and record profits again, comes this disturbing news.
Bank lending to small businesses in California, the nation's most populous state, declined by more than 70 percent from 2007 to 2009, according to a new report from the California Reinvestment Coalition.
The major culprits?
"Small business lending by just three of the banks – Bank of America, Citibank and Wells Fargo Bank – dropped by nearly two-thirds, leading to half a million less small business loans made in California," revealed the report, which was researched and written by Alan Fisher.
Details of the findings were reported by Aaron Glantz, a reporter for the Bay Citizen, an online news site.
The California Reinvestment Coalition, based in San Francisco, is a statewide organization of more than 280 community groups and public agencies, including small business technical assistance providers. The CRC's report relied on information from the Federal Financial Institutions Examinations Council and the U.S. Small Business Administration. The CRC said it looked at conventional lending and SBA lending by five major banks: BofA, Wells, and Citi, plus US Bank and Union Bank.
But the drop off in lending to California small businesses is not solely the fault of pinstriped bankers. "Regulators are reported to be extremely heavy-handed in restricting bank lending to small businesses," the CRC said. "Without the cash flow that they need, businesses are struggling and too many of them are closing their doors."
"Overall, SBA lending by all the banks in California dropped 71 percent during this time period—from 14,529 loans in 2007 to 4,343 in 2009," the CRC said. "So, there were 10,186 fewer loans made to small businesses, or a loss of $1.2 billion in funds for California's small businesses over those two years."
Total small business lending in California from Bank of America, Citibank, and Wells Fargo Bank dropped from 881,129 in 2007 to 315,630 in 2009.
"Minority-owned businesses had an even greater drop in access to SBA loans in this time period," the report said. "African-American-owned businesses experienced an 81 percent decrease and Latino-owned businesses experienced an 84 percent decrease."
The CRC's overall conclusion? "Despite a $700 billion bank bailout and strong reported bank profits, the increased levels of bank lending to small businesses promised by former Treasury Secretary Henry Paulson and others has not occurred."
For the record: Bank of America recently reported a third-quarter profit of $3.1 billion, excluding a one-time charge. Citigroup, the parent company of Citibank, recorded a profit of $2.2 billion for the same three months. Wells Fargo enjoyed a hefty addition of $3.15 billion to its bottom line.
