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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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Today The Support Center released a new report titled “Community Development Financial Institutions in North Carolina: Creating Jobs and Community Economic Development,” which looks at the role of Community Development Financial Institutions (CDFIs) in North Carolina’s economy. CDFIs were established in the 1990s under the US Department of Treasury’s CDFI Fund. These community-based financial institutions provide loans and financial services aimed at revitalizing the nation’s underserved and distressed communities. In North Carolina, there are 17 CDFIs including 10 loan funds, five credit unions, one venture capital fund, and one bank. CDFI banks and credit unions provide affordable personal and business financial services to those who might not be able to access these services through traditional banks. CDFI loan and venture capital funds expand access to capital for small businesses, microenterprises, commercial and residential real estate development (including affordable housing), home purchases, and consumer loans.

As traditional banks pull back from lending, tighten their lending standards, and close down many of their branches, CDFIs have stepped in to fill the gap. In 2010, the 17 CDFIs in North Carolina helped to finance 33,000 businesses and developments that have created 3,100 jobs across the state. CDFIs also provide technical assistance and financial literacy training to help their members and borrowers improve their financial management skills in the long-run. Read More

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The Washington Post had a lengthy piece on credit unions and small business lending yesterday, focusing on the effort to raise the business lending cap from 12.25 percent to 27.5 percent of assets of credit unions.

The article gave examples of Washington area businesses that were unable to get loans from banks, despite having experience in their industries and previous success. As a Community Development Financial Institution, The Support Center provide small  business loans to entrepreneurs in underserved communities. In addition, we also work with Community Development Credit Unions across the state that do small business lending. This is a story we hear very often. Several of our borrowers couldn’t get a loan, even though they probably would have been able to a few years ago.

Although there has been opposition from banking groups, demand for loans has gone up among credit unions:

“Lending to mom-and-pop shops climbed 5.8 percent over the prior year to $37.8 billion in the first quarter, according to the National Credit Union Administration, a regulatory agency. During the same period, the Federal Deposit Insurance Corp. recorded a 3.7 percent decline to $584 billion in small business lending at banks.”

Some opponents of lifting the cap say that doing so would be “inconsequential” because only a few credit unions are close to their cap anyway.  The senior vice president of grassroots and political operations the American Bankers Association, James Ballentine, even said, “You can’t fight for something that doesn’t apply to the masses. If it only helps a handful, then Congress certainly should not be going down this road.”

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The Support Center released a report yesterday titled “Small Business Lending in North Carolina: The Increasing Role of Community Lenders,” which examines small business lending patterns of banks, Community Development Financial Institutions (CDFIs), Community Development Credit Unions (CDCUs), and credit unions in the state (we previously posted about this on our blog here). As large banks recede from small business lending, the report shows that community-based lenders have been stepping in to try to fill the lending gap, particularly in low-wealth communities where, in many cases, the small businesses they serve have been turned away from mainstream banks. Specifically, the report found that:

  • Banks invest 250 times more, in terms of small business lending, in upper income census tracts than in lower income tracts
  • By contrast, CDFIs invest 40 percent more, in terms of small business lending, in lower income census tracts than in upper income tracts
  • CDFIs invest 26 percent of their lending resources in low- and moderate-income census tracts, compared to 16 percent by large banks
  • 72 percent of the loans made by CDFIs are under $100,000, while 87 percent are under $1 million

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