URBAN AFFAIRS REVIEW / July 1999Immergluck / SMALL-BUSINESS LENDING INTRAMETROPOLITAN PATTERNS OF SMALL-BUSINESS LENDING What Do the New Community Reinvestment Act Data Reveal?

Discrimination and redlining in business lending have been cited as contributing to economic decline in lower-income neighborhoods. Until recently, bank regulators have not collected geo-graphic data on business loans. Using new data collected by regulators, the author measures small-business lending flows to different types of neighborhoods in the Chicago metropolitan area. Although data limitations preclude a definitive finding of differential access to credit, lower-income and minority neighborhoods areas receive fewer loans after accounting for firm density, firm size, and industrial mix, findings that support the notion of geographic and/or race-based discrimination in marketing or approving loans. Problems of anemic or declining business development in many low- or moderate-income neighborhoods continue to be of concern to policy makers and researchers (Bingham and Zhang 1997; Porter 1995; U.S. Department of Housing and Urban Development 1995). One potential contributor to such problems is inadequate access to credit by small businesses in these areas. Bates (1989) showed that levels of both financial equity and debt are impor-tant to the viability of start-up firms, with the latter being more important to minority-owned than white-owned firms. Some have argued that lending dis-crimination and geographic redlining have constrained access to credit by firms in lower-income areas and by black-owned businesses (Bates 1993; Dymski 1996). Firms in low-income areas seeking loans might face either geographic dis-crimination, known as redlining, or individual-based discrimination against minorities or other protected groups. Moreover, discrimination may occur at various points of the borrowing process. Lenders might avoid marketing thei