MARK PRIMEAU
More work ahead

The Massachusetts Community & Banking Council recently issued its fifth report on small-business lending patterns in the Greater Boston area, and while overall lending to small businesses remains strong, the results show persistently low lending rates in Boston’s low-income and minority areas.

Kathleen Tullberg, manager of MCBC – a coalition of community organizations and regional banks that encourages community investment in low- and moderate-income and minority neighborhoods – said the report was in part an effort to provide banks an overview of the areas that need small-business lending help.

“The report was an effort on the part of MCBC as a way of providing our banks and community members with a baseline of information to use … and identifying the areas [in Boston] that could use some more work and providing those areas with lending opportunities,” said Tullberg.

Over the past five years, Tullberg said, the most startling statistic found by MCBC is the consistency of low lending rates to small firms in low-income census tracts, while the highest lending rates were in either middle- or upper-income census tracts in the Boston metropolitan statistical area, commonly referred to as Greater Boston.

DeAnna Green, director of small-business programs at the Massachusetts Association of Community Development Corporations, said banks are missing out on great financial opportunities by not funding small businesses in low-income communities.

“We need to support these businesses because they are what makes the city diverse – they provide job opportunities and help rebuild the economy, and we need to look at them as a strategy of investment,” said Green. “They are revitalizing the community and providing goods and services for a community. We need to really understand what they bring as far as an economic impact to the city of Boston.”

Margaret Somer, director of the Small Business Development Center at the University of Massachusetts-Boston College of Management, said there is a tendency for banks not to loan in low-income and minority communities because the loan requests are usually small and not lucrative for the bank.

But small one- and two-person businesses bring in more employees and more revenue as they grow, and Somer said that banks would benefit by sticking with start-up firms through the long haul, building loyalty and growth opportunities for the future.

“In low-income communities, people are asking for smaller loans and a touch more technology support from bankers. Banks think small loans are unprofitable, but the best way for the bank to look at [those loans] is like the bread and milk in the supermarket – they are there to bring in more customers,” said Somer. “They are a draw to bring people in and as the company grows, [the bank] continues to finance that company and sees the profits.”

Making ‘Improvements’

But the MCBC report is not all bad news regarding small-business lending.

According to the report, despite a weakened economy, the number of small-business loans in the Boston metropolitan statistical area increased 16.3 percent and the overall dollar volume of small business loans increases 4.5 percent in 2002.

On the flip side, in the city of Boston, the number of small-business loans in 2002 increased 10.7 percent while the dollar volume of small-business loans decreased 10.4 percent. MCBC also reports that in three of the last four years, the lowest rates of lending to small firms in the city of Boston were in lower-income minority neighborhoods, while lower-income white and mixed-race neighborhoods generally reported higher lending rates.

“We don’t really know why [banks] aren’t lending in low-income or minority areas. That is certainly a concern and something we want to look at and try to figure out why that’s happening and continue to support programs in those neighborhoods that try to bridge the gap between businesses and loan originators,” said Tullberg.

According to one local banker, there is much more that banks can, and should do, to support local businesses in low-income and minority communities.

Mark Primeau, executive vice president at Eastern Bank, said it is the bank’s job to promote lending options to small-business owners in low-income and minority communities who might not otherwise know what lending options are available.

“We continue to see relatively lower levels of small-business lending in lower-income communities and I think that clearly indicates that banks have much more work to be done,” said Primeau. “In low-income and minority areas, there is a lower level of economic activity and it also could be that lower-income and minority groups still don’t feel comfortable approaching banks for financing. They rely on private financing sources, friends and relatives, credit cards or other borrowing initiatives. It’s a continued objective of banks, as well as other community groups, to publicize the wide variety of opportunities to businesses.”

Because of the recent changes in the banking landscape – mainly the merger of Bank of America with FleetBoston Financial – industry officials at the Small Business Development Center said now the perfect time for smaller banks to start investing in small businesses in low-income and minority communities.

Somer said small businesses are concerned about the “human touch” aspect of working with lenders, especially now that a national bank is making its presence felt in the area.

“We are at an important moment right now. The old BankBoston had a deep commitment to lending in Boston. Then, they became Fleet and Fleet moved out around [New England]. Now, we’re going to be dealing with Bank of America and some wonder if there will be a human being on the other end of the phone,” said Somer.

Somer said banks that invest in small businesses now – even if the loan size may be small and relatively unprofitable for the bank – would reap the benefits in the future.

“New England entrepreneurs are here building their lives and their families, and building their tax revenues, in Boston and it becomes vitally important for banks to look at minority entrepreneurs who are creating employment in the community,” said Somer.

Somer said banks should identify the “long-term” players in the small-business marketplace and start lending to them, regardless of the loan size.

“We really see a gap in the marketplace for small businesses in terms of [offering] small loans, lines of credit and working capital loans for smaller amounts … but we really need the banks to step up to the table when they see a really terrific 3-year-old company seeking a $35,000 loan … [banks should] get to know those businesses and the investment will pay off in a couple of years,” said Somer.

According to Primeau, the overall volume of lending to small businesses is on the rise. “I think that is a good sign because small business is the lifeblood of the American economy,” he said.

Primeau said most banks view the small-business marketplace in Greater Boston as a solid business opportunity, and banks continue to lend to businesses that are demonstrating financial and operational success. But, he said, lending in low-income and minority communities must increase for the betterment of the Boston economy.

“Obviously, when banks lend money the expectation is that those loans be repaid. If not, [banks] can’t stay in business, so we have to reevaluate each business on a case-by-case basis,” said Primeau.

“But, I’m optimistic,” Primeau said. “We’ve just come through a pretty bad recession, but nevertheless the number of small-business loans increased. That says something for the overall Boston economy, but we still have to make improvements in [lending] in the low-income minority communities.”

Melanie Nayer may be reached at mnayer@thewarrengroup.com.