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Study finds racial, income disparities in Buffalo Niagara business lending

Small businesses in low-income neighborhoods were much less likely to receive bank loans than those in higher-income areas of Buffalo Niagara, a new report said.

The same pattern emerged in predominantly minority communities compared to white neighborhoods.

The Woodstock Institute, an Illinois-based advocacy organization that examined lending patterns in the Buffalo Niagara region, said the results of its study raise questions about the ability of businesses in low-income and minority communities to obtain loans to grow.

The non-profit research group examined lending patterns in the Buffalo Niagara region as part of a broader study into lending in different parts of the country. The organization, which is working for a "more fair and inclusive financial system," also looked at lending in New Brunswick, N.J., in its most recent report.

The institute focused on loans of $100,000 or less made by large banks – defined as having at least $1.2 billion in assets – that were reported under the Community Reinvestment Act. Loans of that size accounted for 92 percent of all of the CRA-reported business loans, said Spencer Cowan, the report's author.

In Erie and Niagara counties, businesses in predominantly minority neighborhoods comprised an average of 6.5 percent of all businesses from 2012 to 2014, but received only 3.3 percent of the loans under $100,000 reported under the Community Reinvestment Act, the Woodstock Institute found. Businesses in those areas received only 3 percent of the total dollar value of those loans, the report said.

If those businesses had received loans in proportion to their overall share of business, they would have received $18 million more in loans from 2012 to 2014, the institute said.

Similarly, the report said businesses in low-income neighborhoods in the Buffalo area were under-represented for business loans. Businesses in low-income areas constituted an average of 14.7 percent of all area businesses, but received only 6.3 percent of the CRA-reported loans under $100,000, and 6.3 percent of the total dollar amount. Had they received loans reflecting their share of businesses in the region, they would have received 3,300 more loans, worth an additional $43 million, the report said.

Not all businesses in the areas studied are seeking loans. Cowan said some businesses don't apply because they're "discouraged."

"They think, 'There's no way I'm going to get approved. Why even bother trying?'" Cowan said. Others might think the application process is too difficult to go through, he said.

Cowan said the institute could only review data about loans actually originated by banks. There was no information available about how many people applied for loans and were turned down, or what the applicants' characteristics were, he said. One of the report's recommendations was for the Consumer Financial Protection Bureau to gather expanded data from lenders.

The report said the lack of access to loans prevents small businesses from being able to expand and hire workers, impedes their ability to manage cash flow and finance inventory, and might force them to turn to alternative lenders with exorbitant interest rates.

John Washington, director of organizing at PUSH Buffalo, called the report's findings about lending patterns "deeply troubling."

"Regulators and policy makers need to pay attention and hold banks accountable to their legal responsibilities to fair lending and community reinvestment," Washington said in a statement.



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