Written by Gabriel Dillard
Businesses located in Fresno’s predominantly minority census tracts missed out on loans totaling nearly $79 million from 2012 to 2015.
Looking at Fresno’s low-income census tracts, that figure is $56 million in loans not accessed.
Those are just two findings in a study examining disparities in small business lending conducted by the Woodstock Institute, a nonprofit research organization that focuses on fair lending and financial systems reform.
Businesses in Fresno’s predominantly minority areas made up an average of 31 percent of all businesses in the region, but only received 18.5 percent of all business loans under $100,000 from 2012 to 2015.
The $79 million represents just fewer than 5,700 additional loans that businesses would have received if lending levels were proportionate to their share of all businesses in Fresno.
That disparity is amplified, according to the authors of the report, by the rise of alternative, non-bank “financial technology” online-based lenders often characterized by high-interest rates, unfavorable terms and poor customer service.
One business owner who used that option and regretted it was Rick Marino, co-owner of Pacifica Pizza, which has seven locations in Fresno County that employ 70 people. Marino started the business in 2007, and was able to expand with help from Fresno CDFI, now known as Access Plus Capital, which specializes in financing solutions for low- and moderate-income entrepreneurs.
Pacifica Pizza — which has locations in rural, low-income communities including Selma, Firebaugh and Kerman — hit a cash crunch when some of the restaurant’s contracts and accounts started getting behind on payments. Marino turned to merchant cash advance companies to fill the gap, and that soon turned into a tough situation for the business.
“My capital was getting killed from these companies,” Marino said.
He was able to refinance those loans through Fresno-based Access Plus Capital. Baldev Birk, a technical assistance analyst with Access Plus Capital, said that refinancing onerous non-bank lending is a common part of their portfolio. He ran across one loan that had a 100-percent annual percentage rate, and rates of 20-30 percent are common.
Birk said Access Plus Capital can provide small business loans up to $500,000, and in 2016 made loans totaling $6 million, 65 percent of which went to minority business owners.
Access Plus Capital, which serves 14 Central California counties, also provides training programs for its borrowers, to make them “loan ready.” Courses include financial forecasting, marketing and businesses plan assistance.
He added that personal credit scores don’t weigh as heavily in their loan underwriting process as does the viability of the business.
“For some of our clients, this might be their first interaction with a financial institution,” he said.
Access Plus Capital is a community development financial institution (CDFI), which was created to provide financing options to disadvantaged populations. Another CDFI in the region is the Valley Small Business Development Corp. Local organizations are also partnering with CDFIs outside of the area to offer local services, such as the Fresno Area Hispanic Foundation’s new relationship with the Opportunity Fund, a San Jose-based CDFI.
This report was the fourth in a series prepared by the Woodstock Institute, which also examined financing disparities in several other U.S. cities, including Chicago, Los Angeles/San Diego and Detroit. The reports all showed disparities in lending, said Brent Adams, senior vice-president for policy at the Woodstock Institute.
The report offered a number of recommendations for policymakers and banks, including:
— A requirement for all small business lenders (bank and non-bank) to report race and gender of loan applicants and other data
— More investigation by the Consumer Financial Protection Bureau and the Department of Justice into potential discrimination
— A federal charter for non-bank lenders that would require more reporting, financial inclusion requirements and oversight
— An expansion of support for CDFIs and New Markets Tax Credit programs that focus on lower-income neighborhoods and communities of color
— Requiring banks seeking to merge or acquire other banks to commit to increase investment in underserved communities
— More support for nonprofit organizations that conduct fair lending training and testing
For more information about the report, visit the Woodstock Institute.