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Lending to small businesses is good for the economy

Small businesses are often discussed as the key to our economic recovery, yet while they are drivers of economic activity many still face challenges in accessing capital to start up and grow. As banks have reduced their lending to small businesses, particularly after the Great Recession, other lenders, like Community Development Financial Institutions (CDFIs) have stepped in to fill the lending gap by expanding access to capital for small business owners in underserved communities. Today, The Support Center, a CDFI in North Carolina, released a report looking at the economic impact of their small business lending program, showing that the businesses we serve are having a positive impact on the state’s economy.

The report examined 69 loans made by The Support Center within a two-year period, totaling $6.2 million. The loans were segmented into two types: loans that saved jobs ($3.6 million in lending that saved 225 existing jobs) and loans that created jobs ($2.6 million in lending that created 137 new jobs). Using input-output analysis to measure the direct effects as well as the indirect and induced effects of our investment, the report finds that:

  • The Support Center’s $3.6 million in “job retention loans” saved a total of 251 jobs that would otherwise have been lost and protected the state’s workers from losing almost $2.5 million in income.
  • The Support Center’s $2.6 million in “job creation loans” generated a total of 156 jobs that would have otherwise not existed in North Carolina and generated $1.9 million in income for the state’s workers.
  • For jobs directly created by loans to recipients of “job creation loans,” the ripple effects of this investment will generate another 1.14 jobs across the state’s economy.

At a time when job creation remains slow, and when many of our communities face mounting economic challenges, these small businesses are helping to generate much-needed economic activity. Small businesses can play a vital role in the state’s economic recovery, but without capital they will not be able to hire workers, purchase goods and equipment, pay their workers, expand their inventory, make physical improvements, or make other investments. These activities impact the activities of other businesses, households, workers, and ultimately the economy as a whole.

For more, download the report here: http://thesupportcenter-nc.org/impact/policy-research.

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