CHAPTER 1
loans,” writes Stacy Mitchell with the Institute for Local Self-Reliance. Small and mid-sized
banks provide more than half of all small business loans.75 But for the past three years,
lending to small businesses has been on the decline for any size bank. “If someone walks into
a bank of any size and says they need a loan of $10,000 or $20,000 to start a business,” says
Quiñonez, “they are going to be handed an application for a credit card rather than handed
over to a loan officer.”
Most enterprises of this size are
Figure 1.10 Small Businesses Struggle to Find Lenders Who Will
started using the owner’s personal
Make a Deal, 2009-2012
wealth; borrowing against a home
mortgage is a common strategy.
0%
The loss of wealth in communities
of color after the housing bubble
-10%
-13%
burst has made it more difficult
-17%
Small & Midfor small businesses to get started
Sized Banks
Large Banks
-20%
or finance growth. Entire communities of color suffer as a result
because these are where entrepre-30%
-33%
neurs of color tend to operate.
Giant Banks
Not only does it result in fewer
-40%
businesses providing goods and
Note: Small banks are defined as those with $1 billion in assets or less; mid-sized banks as
services in the communities, but
those between $1 and $10 billion in assets; large banks as those with $10 to $100 billion in
also it means fewer jobs will be creassets; and giant banks as those with more than $100 billion in assets. (All size categories in
2009 dollars.)
ated there.
Source: Institute for Local Self-Reliance (2012. Federal Deposit Insurance Corporation data.
The Mission Asset Fund uses
lending circles to help people get
the loans they need to start businesses. Lending circles, or savings clubs, are a form of social
loan. Participants in the circle all contribute to providing a loan for one member. By taking
turns, they eventually are able to make a loan to every member. Lending circles are common
in developing countries, where low-income entrepreneurs are also excluded from mainstream financial services. Lending circles help people get to the
“It doesn’t matter what
first rung of the ladder, explains Quiñonez, but when they are
political stripe you are,
ready to start growing the business and hiring employees—that
if you understand that
second or third rung—there’s not much support in a lending
$1 of public money can
circle either.
be used to leverage
Community development financial institutions (CDFIs) are
$10 to $20 in private
another way for small businesses excluded from the mainstream
money, there’s a lot of
financial system to get support. CDFIs work in communities that
bang for your buck.”
are traditionally underserved by larger lending agencies. The
— Mark Pinsky
Neighborhood Development Center in St. Paul, Minnesota, is a
CDFI that provides support to small start-ups. For example, the Neighborhood Development
Center helped the Payans, a Latino immigrant family, expand their small tortilla business,
Tortilleria la Perla, into a $3 million operation employing 50 full-time workers.76 The Center
has helped African American, Latino, Hmong, Native American, Oromo, and Somali businesses secure low-interest loans and technical assistance. The enterprises that are its clients
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