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Small Business Loan Demand Rising at Community Lenders

Posted by: John Tozzi on June 05, 2009

I had an interesting chat today with Mark Pinsky, CEO of Opportunity Finance Network, which is an organization of financial institutions that focus on low-income and low-wealth communities. These mostly non-profit Community Development Financial Institutions include banks, credit unions, venture funds, and other lenders.

As an industry, CDFIs have committed about $30 billion in capital to financing. CDFIs focus on lending to people, businesses, and nonprofits in areas that banks don’t normally serve, or don’t serve adequately. Pinsky pointed out a trend worth noting: Since last fall, CDFIs have seen a big jump in loan requests from companies that wouldn’t normally seek them out.

“We are just seeing so many businesses who are not our usual customers, who are in effect up-market from us, who’ve been banked for 5 or 10 or 15 years, and have just seen credit dry up,” Pinsky says.

The evidence is anecdotal but strong. I heard the same thing last October, early in the financial crisis, from Laura Kozien of microlender ACCION USA (a member of Opportunity Finance Network). At the time, she said she was seeing more demand from business owners with good credit (FICO 650 or higher) who would normally qualify at banks. In February, Louise Lee delved deeper into the trend.

It’s interesting that demand for small business loans is up at microlenders and CDFIs — because it’s down at banks. At least according to the Fed’s quarterly lending survey, demand for commercial and industrial loans is falling, and credit standards are tightening. (Prior coverage here, Fed report here.)

If you’ve sought funding from a community lender after being turned down from a bank — or if you work in a CDFI and have spotted this trend — let us know in comments or on Twitter.

On a related note, we just published a special report on the fastest growing companies in low-income and low-wealth communities — the same areas that CDFIs serve.

Reader Comments

Michael Falco

June 5, 2009 08:23 PM

I was formerly a reporter in Southwest Iowa and covered a range of CDFIs. Their impact on the community was always tremendous. They always seemed to be at the forefront of providing lending to small-town projects, the ones deemed too risky by mainstream banks because of the community's shrinking population. But,they knew and were committed to their communities -- often unlike the more mainstream, profit-driven lenders.


June 9, 2009 05:17 PM

I think this make sense -- this seems to makes sense. Banks tend to have more restrictions at this time, especially when the decisions are made locally. I think we'll see this trend to continue.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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