New Data, New Opportunities Josh Silver, Vice President of Research and Policy, NCRC March 22, 2013

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1 New Data, New Opportunities Josh Silver, Vice President of Research and Policy, NCRC March 22, 2013

2 Outline of Presentation Objective Increase Access to Responsible Credit by Holding Financial Institutions Accountable Power of Data Can Identify Geographical Areas Served and Gaps Limitations Limited Demographic Data on Small Businesses Limitations on Demand Analysis for Loans or Ability of Small Businesses to Qualify for Loans Dodd-Frank Requirements to Enhance the Data: What will be Rectified and What Data Gaps Remain Case Study Comprehensive Study on Access to Credit and Capital for the Appalachian Regional Commission (shows power and limitations of current data)

3 Current Small Business Loan Data Disclosed as part of the CRA regulations" For aggregate, disclosure by census tract" For individual lenders, disclosure by income category of tract" Dollar size of loans in categories" Two revenue size categories for small business borrowers above and below $1 million in revenues" Revenue size not disclosed if revenue of small business not used in decision at very least, revenue NA should be listed in data." Thatʼs about it useful but quite limited"

4 Section 1071 Small Business Loan Collection Dodd Frank The purpose of this section is to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses."

5 Dodd-Frank Section Open ended on which institutions required to report, can include non-banks " CFPB will have discretion to decide which institutions will have exemption from reporting ICBA wants exemption for institutions $10 billion or less." Big deal in Appalachia mid size banks ($250 to $1 billion), but they are just voluntary reporters donʼt know how much of the loan data is from mid-size banks. Our previous report for ARC in 2007 found significant role for mid-size banks before their data reporting requirement was deleted."

6 Dodd-Frank Section 1071 Small Business Loan Data Demographics Race and gender of the small business owner, revenue size of business; census tract" Type and purpose of loan Possibilities are credit card, origination, refinance, govt. guaranteed" Action taken on application; amount of credit limit approved" Data availability must retained for three years and made available in form prescribed by the CFPB" Discretion for CFPB to add data elements which fulfill purposes of Sec1071 or delete elements to protect privacy of borrowers

7 Enhancements to Data Critical, but Will it Be Enough Assess if credit needs are being met for various demographic categories of small businesses & identify missed business opportunities" Better enforce fair lending laws" Enhance studies like ARC that seek to identify if private sector and public sector programs are meeting needs and direct actors to addressing gaps in access" Next generation of small business data include information like creditworthiness like new HMDA data; collateral like LTV for new HMDA data; price data?"

8 Objectives of Study of ARC Study Measure access to credit and capital for small businesses. Compare US to Appalachia and categories of counties and sub-regions within Appalachia Supply of loans and investments by banks, CDFIs, equity funds, RLFs, and other institutions CRA small business lending, SBA 7a, SBA 504, microloan program, CDFI lending Distribution of banks, credit unions, CDFI and other institutions in Appalachia Explore relationships between access to credit and distribution of lenders and branches Spatial autocorrelation, mapping, county index, demand analysis

9 Ratio of Small Business Loans to Small Businesses by Region % 20% 40% 60% 80% United States 19.5% 61.6% Appalachian Region 16.2% 50.3% Northern Appalachia 19.4% 55.5% North Central Appalachia 15.8% 46.2% Central Appalachia 11.1% 33.3% South Central Appalachia 15.7% 50.9% Southern Appalachia 14.8% 50.0%

10 Ratio of Small Business Loans to Small Businesses by Economic Status % 20% 40% 60% 80% Distressed 8.6% 28.1% At- Risk 13.5% 36.1% Transitional 16.2% 50.5% Competitive 19.7% 57.9% Attainment 15.9% 63.3%

11 Credit Card Small Business Lending Identify credit card small business loan specialists large institutions typically, but do data limitations impede analysis? Hypothesis: more credit card lending in disadvantaged counties with less creditworthy small businesses and less access overall to loans. Not necessary (credit worthiness data would be helpful) Is credit card lending correlated (neg. or pos.) with overall small business lending? Yes, 6% by $ amt., half by count Large market share in attainment counties Market share increased in distressed counties "

12 Credit Card Market Share by Economic Status

13 SBA Lending 7a and 504 not targeting disadvantaged counties Microloan program is better at targeting, but smaller than 7a Access for minorities for 7a is better than access for females females not being targeted in disadvantaged counties Important: Publicly available data by race/ethnicity and gender for SBA lending but not for CRA lending

14 Number of SBA 7a Loans per 10,000 Small Businesses

15 Access and Denial Rates Significantly lower percentage of surveyed small businesses in Appalachia compared to nation received loans Pepperdine Survey Higher denial rates for small businesses in Appalachia compared to nation Kauffman Survey Approval and denial rates not in current data; must rely on surveys

16 Percent of Surveyed Businesses with Revenues of $500,000 to $1 million Receiving Loans (Source: Pepperdine Survey) 40% 35% 35% 30% 25% 20% 17% 15% 10% 5% 0% Nation Appalachia

17 Percent of Respondents Denied Loans in Appalachia and US (Source: Kauffman Survey) % 5% 10% 15% 20% 25% 5.8% US 7.4% 8.7% 12.6% Appalachia 15.5% 22.9%

18 Conclusion Enhanced data critical to holding institutions and increasing responsible lending Enhanced data would have been quite valuable for ARC study to better understand credit card lending, lending patterns of mid-size and small banks. Important: Publicly available data by race/ethnicity and gender for SBA lending but not for CRA lending The Dodd-Frank improvements likely to get small business loan data to where HMDA is today, but can we get small business and HMDA at same point (ie. collateral and borrower creditworthiness as well).

19 To follow up with the speaker: Josh Silver, VP of Research and Policy, NCRC or Presentations will be available at by March 29, 2013

Access to Capital and Credit in Appalachia and the Impact of the Financial Crisis and Recession on Commercial Lending and Finance in the Region

Access to Capital and Credit in Appalachia and the Impact of the Financial Crisis and Recession on Commercial and Finance in the Region Final Report July 2013 Prepared for: Appalachian Regional Commission