With the start of the new year, the Baton Rouge Area Chamber is launching a new study that will focus on access to capital—or lack thereof—for small businesses in the Capital Region.
It’s not a new problem. But BRAC executives say there’s a renewed interest among their members about why it’s harder in Baton Rouge than in other peer cities for small businesses to get financing—be it conventional loans from banks or equity investments from angels and venture capital funds.
“This has come up before, but this year it seemed to gain a lot of focus and attention when we polled our members,” says BRAC Senior Vice President Michael DiResto. “So we’re hoping to harness that interest to work with folks in the business and lending communities to figure out what’s behind this lack of access to capital and how to solve it.”
It’s hard to say for sure how
serious the problem is, but data from the U.S. Small Business Administration suggests it’s bad nationwide—and worse here. Between 2007 and 2012, traditional lending for small businesses decreased more than 20% nationwide. During the same period, small business lending dropped as a share of banks’ commercial lending.
More troubling is that in Baton Rouge small business lending per capita in 2013 was just $849, compared to nearly $10,000 in Birmingham, Alabama; $2,000 in Columbia, South Carolina; and $1,600 in Little Rock, Arkansas.
Figures for 2014 and 2015 are not yet available, but the trend is not expected to have changed for the better.
“This is holding us back,” says Rob Powell, a partner in financial brokerage and consulting firm Cardinal Capital, who is volunteering to work on the BRAC study. “This is why growth in this market is so stagnant.”
Several factors are at work, according to BRAC’s preliminary research. Banks have been facing increasingly tight standards due to the financial crisis of the late 2000s. At the same time, bank failures and FDIC-designated problem institutions have increased dramatically since 2007, while new bank charters have plummeted.
While the amount of investment from angels and VC funds has increased locally over the past decade, it’s not enough to make up for the lack of lending by local banks.
“Angel investors and VC funding may make up a very small portion of overall small business financing, but they are an important piece overall in the finance ecosystem,” BRAC’s report says.
Now that BRAC has identified the problem, DiResto says efforts moving forward will focus on trying to get a better handle on the scope of the situation and digging deeper through interviews with lenders and business owners. BRAC’s Small Business and Entrepreneurship Council is spearheading the effort and is currently “mapping out what the research will look like,” he says. BRAC hopes to complete a report by the end of the year.
Powell, who sits on BRAC’s SBEC, says he’s not expecting any quick or easy solutions to come from the effort. But it’s important to start somewhere.
“This will have to be a long-term change,” he says. “We’re not going to turn this around overnight.”