Washington should increase funding for Community Development Financial Institutions
Published: November 22, 2016 – 12:01 am
This weekend we celebrate Small Business Saturday, an annual event following Black Friday, when shoppers are encouraged to support their communities by shopping local, incentivized by small businesses across the country offering special promotions.Small businesses drive the U.S. economy, accounting for 48% of our private workforce, 74% of new private-sector jobs since 2008, and 99.7% of all U.S. businesses. However, for as much value as these businesses add to the U.S. economy, many of them face undue obstacles in getting financing to grow and thrive. Limited access to credit is a problem for small businesses across the board, but it hits hardest in the communities that need economic development the most.
This needs to change. I’ve authored the Investing in America’s Small Businesses Act to do just that. My bill would increase funding for a little-known federal program called the Community Development Financial Institutions Fund. CDFIs help finance businesses in underserved communities.
To see the impact that CDFIs and affordable credit can have on small businesses in underserved communities, look no further than right here in New York.
In Long Island City, local resident Shah Yafi wanted to start a business to provide fresh, high-quality, affordable food to his community. While many traditional financial institutions would not provide a loan to a first-time small business owner in the notoriously risky food service industry, the Business Center for New Americans saw potential in his idea. The Manhattan-based CDFI provided Yafi with a $25,000 loan and helped him start LIC Deli Gourmet. Over the last few years, his shop has grown into a highly successful enterprise, employing eight residents from the local community.
In the East Village, following a tragic gas explosion last year, Asian Americans for Equality and its affiliated CDFI Renaissance Economic Development Corp. started the East Village Explosion Recovery Loan Program to help affected small businesses get back on their feet. This program lent a total of $200,000 to five businesses affected by the explosion. All have since re-opened.
And on the Williamsburg waterfront, bicycle shop Ride Brooklyn Bike and Board needed financing to open a second location. The National Development Council, also a CDFI, was there to help.
Over the last two decades, economists have reported a 27% decrease in the availability of small business loans and minority and low-income business owners struggle more than any other demographic to attain affordable credit. According to a study commissioned by the U.S. Small Business Administration, inadequate access to capital has been the major constraint limiting growth, expansion and wealth creation for low-income and minority-owned small businesses. Far fewer minority-owned small businesses receive loans compared than do their non-minority counterparts, and those that do are typically charged a hefty interest rate.
My bill would address this issue head-on by expanding small-business lending in underserved communities, providing $25 million in grants to the CDFI Fund, a government agency that offers competitive grants to lenders across the country. CDFIs provide affordable, responsible lending to businesses in underserved communities. While CDFIs have a strong track record of successfully lending in these communities, they often lack the capital to meet the needs of the many promising small businesses seeking their help, leaving important needs unmet. The funding provided by my bill would allow CDFIs to leverage more private capital to finance these small businesses serving minority and low-income populations.
As small businesses grow, so do the communities they serve, producing capable workforces and thriving local economies. By passing the Investing in America’s Small Business Act, we can help these businesses grow and improve the economy in communities that need it the most. History has shown us that these investments will pay off for years to come.
Rep. Carolyn Maloney, a Democrat, represents portions of Manhattan, Brooklyn and Queens.