Improving Access to Capital for Urban Small Businesses

This roundtable discussion focused on improving the access of urban small businesses to business credit and capital. The discussion laid the groundwork for a broader conference intended to stimulate needed improvements in the databases used for scoring small businesses.

New data, plus a competitive market interested in better serving this market, create an opportunity for innovation in small business access to capital, a group of experts in small business credit scoring and small business capitalization concluded on March 9, 2006 at an Urban Markets Initiative Industry gathering.

The experts assembled to contribute to an emerging national discourse on small business credit granting and risk assessment. Several key questions were considered:

• What are the innovations in small business financing and which, if any, are meeting with success and why?
• How do small businesses see the situation? What are the broader industry efforts underway to help address the problems confronted by small business owners in urban areas?
• Are lenders fully utilizing available information resources about small businesses and their proprietors when making credit decisions? Are there alternative or non-traditional data sets that could meaningfully be integrated into automated decisioning tools for the provision of credit?

In conclusion, the group expressed tempered optimism, noting opportunities to improve access to capital, while acknowledging a challenge ahead. “Small business financing is just starting to pay dividends, we will have to invest in it for the long haul, and it is going to be hard,” said one participant. Yet, financial institutions have shown incredible adaptability in data poor environments to create innovation. “Small gains could have huge rewards…it could be transformational.”

Access to capital is a critical element of driving small business and its economic growth in urban markets. Yet, a number of recent studies into this issue note that even the best urban small businesses perceive significant aconstraints on their ability to access sufficient amounts of affordable capital. The Urban Markets Initiative (UMI) at the Brookings Institution Metropolitan Policy Program aims to improve the quality of the information available on urban communities and use it to unleash the full power of those markets while connecting them to the economic mainstream. UMI has engaged the Information Policy Institute in the initiative.

For more information on this small business capitalization initiative, please contact Alyssa Stewart Lee or go to UMI Industry Initiatives to find out more information.