Inner city businesses lack majority of capital needed to compete

11/14/2011

According to a recent study from nonprofit Initiative for a Competitive Inner City (ICIC), SBA loan programs are found to disproportionally benefit inner-city entrepreneurs.

Despite this fact, the SBA's loan distribution to inner-city areas is falling. Between 2006 and 2008, the percentage of SBA-backed loans dropped from 3.5 percent to 2.6 percent.

The ICIC noted in a separate study that community banks have been the biggest proponents of SBA loans, accounting for 38 percent of loan value during the 2011 fiscal year.

However, 71 percent of inner-city businesses remain undercapitalized. Researchers found that on average, they contain just 25 percent of the capital necessary to compete within their industries. Furthermore, of those businesses that lack capital, 50 percent are minority-owned.

"This study is the first of its kind to look at both the demand and supply for capital in economically distressed urban areas," explained Teresa Lynch ICIC senior vice president and director of research. "We believe it's a critical step in better understanding the capital access challenges of inner city businesses."

ICIC will present study findings at the Federal Reserve System's "Small Business and Entrepreneurship during an Economic Recovery" conference this week in Washington, D.C.