The Morning Economic Report
5:30 am
Fri March 28, 2014

Dynamics of Federal Lending - 3/28/14

A recent Wall Street Journal article highlights some very interesting dynamics in the world of federal lending to small businesses.  For instance, in 2008, African-American owned businesses received 11 percent of all Small Business Administration loans.  Last year, that share was down to just 2.3 percent of the federal agency’s approximately 54,000 loans. 

The issue seems to revolve around the wealth lost in the African-American community during the global financial crisis.  Small business administration loans in excess of $350,000 must be secured by collateral, including the borrower’s home or other assets.  The SBA is also making fewer very small loans, many of which used to be accessed by African-American entrepreneurs.

Here is perhaps what is most amazing – Hispanics actually saw a higher percentage of their net worth evaporate than African-Americans did between 2007 and 2010 according to a Federal Reserve Board survey, but Hispanic business owners received nearly $1.1 billion in SBA backed loans last year, a jump of 85 percent since 2009.  The Wall Street Journal hypothesizes that this is because Hispanics tend to be wealthier, and so they still had more wealth to leverage after the crisis ended.