Access to capital: Milwaukee's continuing small business lending gaps

Under the federal Community Reinvestment Act large commercial banks and thrift institutions were required to publicly disclose small business lending by geographic area beginning with lending activity for 1996. The most current data available are for 1999. Using Milwaukee, Wisconsin as a case study, this study illustrates how these new data can be utilized to assess the allocation of small business loans throughout a local market. This study found that small business loans (defined as loans for less than $1 million) are highly concentrated in upper income areas, and are more concentrated in those communities than is the case nationwide though these gaps moderated slightly during these years. Such lending is also concentrated in white neighborhoods with black and Hispanic communities receiving far fewer loans per population than is the case in white areas. More significantly, lending disparities between White and Black neighborhoods grew considerably. Approximately half of all small business loans went to firms that were small businesses (defined as those firms with assets of less than $1 million). The share of these loans going to such firms is smaller in Milwaukee and this gap increased over time, particularly in low--and moderate--income areas. Finally, this study found substantial differences among area lenders in the distribution of their loans by neighborhood income level and by size of business. On some measures these gaps have moderated slightly while on others they have increased. Policy recommendations are offered to improve the value of small business lending data that will be collected in the future and increase access to capital in low-income and minority neighborhoods.