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Study: Seventy-one Percent of Inner City Businesses are Dramatically Undercapitalized

Thursday, November 10, 2011 2:55 PM

Capital access program helps urban entrepreneurs raise $406 million in capital and create 2,790 jobs

BOSTON, Nov. 10, 2011 /PRNewswire-USNewswire/ -- Seventy-one percent of inner city businesses in the U.S. are dramatically undercapitalized, according to a study, "Capital Availability in Inner Cities: What Role for Federal Policy?" released today by the Initiative for a Competitive Inner City, a non-profit research and strategy organization and the leading authority on America's inner city economies. 

In the study, ICIC examined the supply and demand of capital in America's inner cities and the impact federal agencies and programs such as the Small Business Administration (SBA), New Markets Tax Credits (NMTC) and Community Development Financial Institutions (CDFI) have on capital access. 

Some of the key findings include:

  • Seventy-one percent of inner city businesses are undercapitalized having on average only 1/4 of the capital needed to compete in their industries.
  • Of the businesses undercapitalized,­ 50% are likely to be minority-owned businesses.
  • Community banks are crucial participants in the SBA loan programs, accounting for 38% of SBA loan value.
  • Inner cities received $6.1 billion from the NMTC program, about 1/2 of all NMTC dollars allocated from 2004 to 2008. However, NMTC dollars are used primarily for real-estate transactions; only 9% of NMTC dollars were used to finance inner city businesses.
  • The CDFI program is primarily a source of real-estate lending. Of the $6.5 billion of CDFI assistance awarded to distressed urban areas from 2006 to 2008, only 1/5 of the total was used for business transitions.

"This study is the first of its kind to look at both the demand and supply for capital in economically distressed urban areas," explained Teresa Lynch ICIC senior vice president and director of research.  "We believe it's a critical step in better understanding the capital access challenges of inner city businesses."

ICIC will present the findings from the study at the Federal Reserve System's conference, "Small Business and Entrepreneurship during an Economic Recovery" in Washington, DC on Thursday, November 10th.


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