preface for funding of small business in Europe

 This Data Point article focuses on small business credit, examining patterns in small business
lending (SBL) and the sources of this lending among depository institutions pre-Great Recession
(2004-2007), through the Great Recession (2008-2009), and then throughout the post-Great
Recession Recovery period (2010-2017). 2 Unlike previous studies of small business credit, we
drill down to analyze variation in lending and sources of lending across a number of different
community characteristics. What becomes clear from this granular analysis is the significant
variation in impacts of the Great Recession and the Recovery on different geographies.
This report offers a descriptive story of small business lending during these three time periods,
which illustrates the geographic landscape and variation of this lending. This contributes to the
efforts that the Bureau, other government agencies, and private industry are making to improve
access to credit. The following analysis will feature descriptive statistics and discussion of

primarily through a geographic lens, to explore variation across the country during and
after the Great Recession. Any discussion of causes of the Great Recession, or any causal
linkages between the trends observed in small business lending and other economic activity
during or after the Great Recession itself, are outside the scope of this report.
Key Findings
 Overall, small business lending growth during the Pre-period (2004-2007) was strong,
but gains were greater in urban, more populated, wealthier, and more educated counties.
 Although there was substantial variation in small business lending growth during the
Pre-period (2004-2007), virtually all counties were affected similarly by the Great
Recession (2008-2009).
 Overall, small business lending growth was weak during the Recovery (2010-2017). In
the typical county, by 2017 small business lending had only recovered to roughly half of
2004 levels.

 The number of large banks, community banks, credit unions and thrifts has been
declining since 2004.
 Compared to credit unions, each of the other lender types is relatively more likely to offer
small business lending products. However, the proportion of credit unions that offer
small business lending products has roughly doubled since 2004 (from 10 percent to 20

1.2 Background
According to the Small Business Administration (SBA) Office of Advocacy, there were
approximately 30 million small businesses employing just under 48 percent of all U.S.
employees in 2017. 3 In addition to comprising a major component of the U.S. economy, small
businesses have also had a significant impact on job creation, generating 62 percent of net new
private sector jobs since the Great Recession, which is consistent with the trend over the last 25
years. 4 Given their importance, much has been written about small businesses, especially the
impact of the Great Recession on small businesses, and small business’ role in the Recovery.
Much of this work has focused on two important findings, significant declines in small
businesses caused by the Great Recession, and the decline in the number of community banks,
which are a key source of credit for small businesses. 

On the business side, firm entry declined during the Great Recession, failing to compensate for
failing older businesses resulting in a “missing generation” of entrepreneurs.
6 Other work by the
Federal Reserve showed that jobs at small businesses declined between 2007 and 2009.
On the lender side, a recent study commissioned by the SBA Office of Advocacy and conducted
by researchers at DePaul University showed that lending from banks to small businesses
increased from $308 billion in 1994 to $659 billion in 2008, but then fell 18 percent down to
$543 billion by 2011. 8 Researchers have identified a number of demand- and supply-side effects
that have impacted the ability of traditional financial institutions to offer small business credit
compared to other financial products. 9 The reductions in access to capital due to these
challenges have been exacerbated by recent bank and branch closures, reducing the formal
banking options available to small businesses.
10 Between 2009 and 2011, 389 banks across the
nation failed.
11 Additionally, from 2008 to 2016, 6,008 bank branches closed.
12 Bank failures

 and closures reduce the number of competitors and could have an adverse impact on the supply
of credit and the terms and conditions of credit. As an example, counties more reliant on the top
four banks prior to the Great Recession, i.e. more SBL concentrated among the top four banks,
had less credit available for small businesses, higher interest rates on loans, and an overall
contraction of economic activity.
This paper extends the research previously cited by looking more deeply at small business
lending at a geographical level and analyzing the evolution of small business credit granting
institutions following the great recession. Different descriptions of small business lending are
analyzed in Section 3 of this paper and Section 4 looks at the evolving landscape of financial
institutions granting small business loans.

2. Data
The Federal Financial Institutions Examination Council’s (FFIEC) Community Reinvestment
Act (CRA) data is a primary data source used to analyze patterns in small business lending.
Each year, banks and thrifts that exceed a stated asset threshold must report information on the
number and dollar amount of originated loans, lines of credit and credit cards to small
businesses and farms by census tract. CRA defines “loans to small businesses” as originated
loans with loan amounts less than $1 million that were reported on the Call Report as secured by
nonfarm or nonresidential real estate or as commercial and industrial loans, and “loans to small
farms” as originated loans with loan amounts less than $500,000 that were reported to the Call
Report as secured by farmland and to finance agriculture production and loans to farmers.
According to the FFIEC, CRA data covers 71 percent of small business loans outstanding (by
dollars) of institutions reporting under the Bank Call Report.
14 We rely on CRA data here,
because Call Report data is at the national level and therefore not suited for the type of
geographic analysis in this paper. CRA data is available from 2004-2017, and the figures in this
Data Point feature data running up until 2017 to reflect the data available. The best benchmark
to assess the impact of the Great Recession in comparison to the pre-period is 2004 due to the
fact that it represented the conditions of the pre-Recession while allowing for time for the
economy to recover from the 2001 Recession.
Although CRA data provides a useful picture of the small business lending market at both the
national and local levels, the data has limitations. First, the definition of “small business loan” is
based off the size of the loan rather than the size of the business. As a result, CRA data includes
small-dollar loans to large businesses and excludes large-dollar loans to small businesses. A
limitation of the CRA threshold of 1 million and $500,000 is that fewer loans are considered
over time because the real value of the threshold falls as a result of inflation. Part of the story of
decreasing small business loans under this threshold could be as a result of those businesses
now applying for loans over $1 million. Second, only banks and thrifts that meet a particular
asset size threshold for the prior two years are required to report (the 2016 and 2017 reporting
thresholds were $1.226 billion). Smaller banks, credit unions, online lenders and other nondepository lenders are not required to report CRA data. Although CRA-reporting entities still
comprise the largest portion of the small business lending market, CRA data could present an
incomplete assessment of small business lending patterns if the Great Recession had different

 impacts on non-CRA reporters. 15 The final important limitation of CRA data is that term loans,
lines of credit, and credit cards are aggregated in the data. This is a concern for small business
lending since cards and loans are very different products and serve different business purposes.
The FFIEC Bank/Thrift Call Report and the National Credit Union Administration (NCUA)
Credit Union Call Report are additional data sources for the analysis of small business lending.
Each quarter, banks, thrifts, and credit unions file a report of their financial condition to their
regulator. Although there are significant differences between the two call reports, this report
will only use a relatively similar, small subset of call report data to flag whether a financial
institution offers small business lending products. Banks and thrifts are flagged as “small
business lenders” if the institution has reported at least one small business loan/line
outstanding as of year-end.
16 Credit unions are flagged as small business lenders if they have at
least one-member business loan outstanding on their books in the last year.
A variety of additional data sources are used to augment the CRA and Call Report data. These
data include the American Community Survey (for educational attainment), County Business
Patterns (counts of employer businesses), Census Population statistics, FDIC Community Bank
indicator, Local Area Unemployment Statistics, Non-employer Statistics (counts of nonemployer businesses), Small Area Income/Poverty Estimates (for estimates of household
income and poverty rates), and Summary of Deposits (for matching lenders across datasets).
See Appendix A for sources and additional information about each dataset.

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