A Chicago-based advocacy group says a fledgling Small Business Administration program in effect favors upper-income neighborhoods over disadvantaged areas.
The Woodstock Institute examined SBA lending in the San Antonio metropolitan area, where the agency's new "LowDoc" program was tested in 1993.
Woodstock found that only 25% of the program's loans went to low-income neighborhoods. It also found that loans to upper-income areas in San Antonio increased 110%, while those in lower-income areas went up only 44%.
"This confirms that the SBA does not have clear, justifiable goals for its program, other than to make more loans," said Daniel Immergluck, author of the Woodstock study. "Unless it is targeting areas that are distressed, it is hard to justify its use of tax dollars to fund the program."
The LowDoc program - shorthand for low-documentation loans - guarantees loans of $100,000 or less to small businesses. The SBA made the program available nationwide in July 1994. But it tested the program the year before in San Antonio to determine its effectiveness and impact.
Mike Stamler, a spokesman for the SBA, said the agency does not measure its success by the number of poor neighborhoods it lends in. The agency, he said, lends to individuals based on how well they meet SBA qualifications, not by the economic status of their neighborhoods.
"We can't discriminate based on geography, but that is exactly what the Woodstock people want us to do," Mr. Stamler said. "Their results were based on how well the program hews to their goals, and their goals are not our goals."
He added that the purpose of the SBA is to make loans readily available to small businesses that cannot qualify for credit without the agency's guarantee. Mr. Stamler said the LowDoc program succeeded in San Antonio because it nearly doubled the number of SBA-guaranteed loans, to 398 in 1993 from 203 in 1992.
The Woodstock report recommends that the SBA focus on lending to minority-owned businesses, which it says were underserved by the LowDoc program in San Antonio. The report found that although 55% of businesses in the city were owned by minority group members, they got just 34% of the LowDoc loans.
The SBA's Mr. Stamler said this conclusion, too, is unfair.
"We can only loan to those who come to us and apply," he said. "Seeking out minority business or showing preferences would not be an option in this political climate."
Mr. Lumetta writes for Medill News Service.