Moving Money

Small businesses are more successful getting credit from CDFIs, credit unions, and small banks than from large banks, according to the 2016 Small Business Credit Survey published this week by the 12 Banks of the Federal Reserve System. The report confirms a trend that goes back at least to 2010.

The report found that business with less than $1 million in annual revenue experience “persistent credit gaps… stemming in part from weak credit scores and insufficient credit histories.”

It also reported:

Higher approvals for smaller-revenue firms at community development financial institutions (CDFIs), small banks, and online lenders than at large banks. Borrower satisfaction among all applicant firms is highest at small banks, credit unions, and CDFIs.

“Marketplace” lenders–a phrase used to describe the non-bank “online” lenders–also are a factor for small businesses. The Fed also found that the small businesses, “are also noticeably more likely than larger firms to apply to online lenders: 26% vs. 12%.

The Fed Survey report uses data collected in the last two quarters of 2016.


Why CDFIs?

A related report in Fast Company suggests another reason CDFIs are gaining customers–and attention.

“Is Your Money in a Bank that’s Doing Something Good With It?” the magazine asks. Citing the history of black-owned banks–punctuated by Dr. Martin Luther King, Jr.’s suggestion in Memphis the night before he was assassinated that black-owned banks deserved more support from the civil rights community–the article spotlights CDFIs as alternatives for savers, investors, transactors, as well as borrowers.

Where you bank is about more than just your checking or savings accounts or “where your money sleeps at night,” as many CDFI bankers and credit union staff like to say. Every time you swipe your debit or credit card, your bank gets a tiny slice of that transaction. The fees banks and credit unions earn for swipes are part of what banks call “non-interest income.” In 2016, banks and credit unions cumulatively earned $274 billion in non-interest income–33% of their income overall.

The “Move Your Money” campaign has long sought to increase consumer and commercial engagement with small banks, credit unions, and CDFIs.


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