Why Is Big Always So Beautiful? : Banks must help minority and small businesses
In good times, small and minority-owned businesses usually have a tough time making it. In bad times, they often teeter on the brink of extinction. So it’s no surprise that this recession has taken a disproportionate toll of small and minority-owned business. Their daily struggle for survival is compounded by a lack of capital.
The credit crunch has been a drag on both large and small enterprises as cautious lenders have become tightfisted. The crunch may be bewildering for big and medium-sized companies used to easy credit, but it is an all-too- familiar problem for small and minority-owned businesses, particularly in Southern California.
The scope and extent of this problem are unknown. The Community Reinvestment Act of 1977 requires banks to meet credit needs of minority and low-income customers. Their performance is determined by a highly subjective compliance rating system. The only truly hard data that has been collected concerns home loans--and the findings suggest a disturbing inequity.
Last fall, the Federal Reserve’s first survey of mortgage activities according to race and ethnic groups showed nationally that blacks were rejected for home loans more than twice as often as Anglos. Latinos were rejected about 1 1/2 times as often as Anglos nationwide; Asians did slightly better than Anglos.
These unsettling findings are prompting change. First Interstate Bank this week unveiled expanded mortgage and other loan programs for minority and low-income customers, making available $85 million for homes of up to $130,000 in 1992 and $21 million in loans guaranteed by the Small Business Administration. Bank of America, after merging with Security Pacific, will lend $12 billion mostly to low-income and minority customers over a 10-year period.
Does a similar bias in lending patterns exist in loans to small and minority businesses and consumers? Community groups such as the Greenlining Coalition of San Francisco are pressing Fed Chairman Alan Greenspan to study this.
The plight of small business isn’t sexy in comparison to the troubles of, say, Olympia & York Developments Ltd., which banks are scrambling to help. The world’s largest privately held real estate empire, trying to refinance $18.5 billion in loans, is having to open its books to banks for the first time. In contrast, small and minority businesses must unfailingly meet stringent qualifications before they can hope to get financing. The glaring inequities of the 1980s credit policies are bearing their economic and social costs now.
Mortgage Rejections Percent of 1990 loan applications in Los Angeles, excluding refinancings. Blacks: 19.8% Asians: 13.2 Latinos: 16.3 Anglos: 12.8 Source: Federal Reserve Board
