Synergy and Friction – CRA, BHCs, SBA and Community Development Lending

The era of federal funding retrenchment makes acute the need for community businesses to have access to capital. The Small Business Administration (SBA) provides small businesses with access to low-cost loans funds. The existing SBA regulatory scheme fosters an approach which allows a private mechanism, lenders, to make public policy decisions about the socio-economic character of communities. Implicit in the Community Reinvestment Act (CRA) and its recent reforms are a recognition of the complex interdependence among policy objectives. The reform statute specifically recognizes that geographical disinvestment has an equally deleterious effect on small business lending as it does on residential mortgage lending. The policy objectives of another statute, The Community Development Banking and Financial Institutions Act ( CDBFIA ) must be considered. CDBFIA is flawed to the extent that it does not take into account the effect that geographical consolidation of the banking industry will have on small business lending. The easing of geographic restrictions in banking has resulted in fewer institutions. Arguably, the concomitant effect on all business lending is a broader credit market and therefore greater access to funds. However, for small businesses generally, this may not be the case. Ensuring credit equality to this sector requires closer scrutiny of all aspects of available small business lending. In small business lending, however, fair lending laws provide a limited mechanism for ensuring that SBA-guaranteed loans are used properly. A proper use for SBA-guaranteed loans is revitalizing economically distressed communities. Given this premise, lenders\u27 decisions about access to SBA-guaranteed loans becomes an issue of credit access that must be addressed systemically. While CRA reform has expanded the statute\u27s focus to the actual performance of community development lending and provided more means for financing community development loans, it fails to recognize in a concrete way the special needs of small business lending in these communities. The Article proposes modifying the statutory scheme in a way that would effectively combine the interests of small businesses, community organizations, financial institutions, and regulatory agencies to revitalize the economic infrastructure of communities