The economy may be on the upswing, but no one seems to have told California's largest banks. As a result, the state's small businesses owned by women and people of color are suffering, according to a community advocacy group.

Financial institutions in the Golden State that cut back on small business lending during the 2008 financial crisis have yet to loosen their purse strings in any meaningful way, according to a report issued this month by the California Reinvestment Coalition, a San Francisco-based organization that advocates with financial institutions on behalf of lower-income communities and communities of color.

Subsequent declines in business lending have meant economic growth as the economic recovery continues, the report said.

“Taxpayers pumped hundreds of billions of dollars into the major banks, but the banks have turned their backs on small businesses and Main Street,” said Alan Fisher, executive director of CRC. “Banks are continuing to hoard their money instead of making loans to small businesses, especially those owned by women and people of color.”

The report showed declines in conventional small business loans as well as SBA 7a loans guaranteed by the U.S. Small Business Administration. The report noted that among California's largest banks 7a loans declined 60% from 2007 to 2013. In addition, in 2013 only 2% of 7a loans were made to African American-owned business, 11% to Latino-owned businesses and 14% to women-owned businesses.

The smaller the business, the less likely it was to receive financial help, with significant reductions in lending at the $150,000-or-less level, the report said.

The report also cited four of California's largest banks – JPMorgan Chase, Wells Fargo, Bank of America and Citibank – for reducing their small business lending by as much as two-thirds from 2012 to 2013 in five of the state's largest metro areas. Only US Bank stepped up activity, increasing its small business lending by 17% in Alameda, Fresno, Los Angeles, Sacramento and San Diego counties.

CRC has urged bank regulators to assess a bank's level of small business lending based not on peer comparisons, but on the level of community credit need as their standard in small business lending evaluation.

The group also suggested that the Consumer Financial Protection Bureau enforce the regulations required in the Wall Street Reform Act for transparent collection of small business data, including race and gender so it is transparent to the public.

“Banks must strongly support nonprofit community-based lenders and technical assistance providers so that they can build economic vitality in California communities,” the report said.

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California Banks Tighten Purse Strings, Small Businesses Suffer

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