Small business loans are an important tool to measure how local entrepreneurs can access the funds to support their businesses. Loan counts describe the number of loans awarded, while loan amounts describe the total dollar amount of loans granted. SBA 7a, SBA 504, and CRA loans are three options for financing small businesses. For businesses to apply for SBA loans, they can navigate the SBA website to locate lenders within their zip code, and lenders decide to approve or deny the loan.

• SBA 7(A) loans: Facilitated by the U.S. Small Business Administration, small businesses can use this funding short-term or long-term by purchasing an existing business, refinancing current business debt, or purchasing furniture, fixtures, and supplies. 
• SBA 504 loans: also offered by the U.S. Small Business Administration, provide long-term financing to small businesses for big purchases. Businesses can use the money to buy a building, finance construction or building improvements, or purchase heavy machinery and equipment. To receive the SBA 504 loan, businesses must meet job creation requirements or community development/public policy goals. 
• Community Reinvestment Act (CRA) loans: enacted in 1977, the CRA encourages financial institutions to help meet the credit needs of the low- and moderate-income communities. Intermediate small banks and large banks can receive a CRA loan if they are evaluated by the Federal Reserve and other federal banking regulators to be fulfilling the objectives of the CRA. In order to receive credit under the CRA, loans, investments and services made by banks must prioritize community development in their activities, whether that be affordable housing, community services for low to moderate income residents, or economic development. Banks can use the CRA funds for small business loans, home mortgage loans, community development loans, car loans, etc. 

Understanding the number of small business loans that are rewarded in a given area can help local governments identify regions that could use more economic stimulus. Businesses access these loans according to which lenders are nearby; therefore, loan counts and access to this capital can indicate a neighborhood’s access to financial institutions, which tend to be concentrated in higher income areas. Small business loans have also been integral to the economic stability of small businesses during times of financial need, especially during the COVID-19 pandemic. With the monetary support to purchase supplies and finance property, businesses can remain afloat and avoid bankruptcy (See PPP Loans). Strengthening small businesses is part of the larger effort to foster local economies and keep communities together. 

Historically, financial institutions are concentrated in higher income areas due to redlining — a discriminatory practice that withholds financial services from neighborhoods that are significantly populated by racial and ethnic minorities. This continues to present challenges for small businesses in low-income and historically redlined areas today. 

Written by Rediet Retta