The CFPB recognizes the importance for women-owned, minority-owned and small businesses to have access to financing for them to grow. This is the subject of its white paper and a broader request for information as the agency intends to gain more insights into the small business lending market in the U.S.
The Consumer Financial Protection Bureau plans to use information gathered from interested parties to formulate policies to implement Section 1071 of the Dodd-Frank Act which is all for enforcing fair lending laws for small businesses and those owned by minorities and women.
Preliminary Findings on Small Business Lending
On its white paper dated May 2017, the agency noted the role of small businesses in community development but a “data gap” on how they engage with credit markets exists.
“Small businesses play a key role in fostering community development and fueling economic growth both nationally and in their local communities. Women-owned and minority-owned small businesses in particular play an important role in supporting their local communities. To contribute meaningfully to the U.S. economy, small businesses – and especially women-owned and minority-owned small businesses – need access to credit to smooth business cash flows from current operations and to allow entrepreneurs to take advantage of opportunities for growth.
Data on how small businesses engage with credit markets are incomplete. A number of data sets exist; however their value with respect to understanding credit access, particularly for small women-owned and minority-owned businesses, is limited both by scope and frequency. Definitional inconsistencies and a lack of data granularity result in a limited picture of the relationships between small businesses and financial institutions.“
Sizing. Indeed, a basic question such as how many small businesses are operating in the U.S. yields differing answers as the definition of “small business” employed by federal and private sectors vary, the CFPB pointed out.
Profiling. Aside from quantifying or sizing the small business market, the CFPB wants more information about minority-owned and women-owned businesses and their contributions to their respective local economies.
Financing. Using available data, the CFPB estimated that $1.4 trillion is available in debt financing for small businesses. Term loans and lines of credit make up a third of overall small business lending with 36%, followed by supplier financing (21%); business credit (16%); equipment leasing (13%); SBA loans such as 7(a), 504(a) and microloans, and factoring, a cash management tool both got 7%; and merchant cash advance with less than 1%.
The CFPB, relying on Federal Reserve surveys, disclosed that small businesses turn to traditional financial institutions – large and small banks – for their main source of financing. Small businesses did apply for financing from credit unions and online alternative lenders.
CFPB Seeks More information
The agency wishes to supplement the information it has gathered so far on small business lending. To that end, it has filed a request for information from interested parties who may use the preliminary findings on the white paper or the guide questions below as jump off point for their comments.
- What defines a small business?
- What institutions lend to small businesses and what products are offered?
- What types of business lending information are used by financial institutions?
Comments from the public, e.g. consumer groups, lenders, regulators and individual business owners are due 14 July.