Stumbling Blocks to Entrepreneurship in Low- and Moderate-Income Communities

Recent efforts to understand what works best at promoting entrepreneurship in the United States, particularly in low- and moderate-income communities, are reviewed. First, the importance of entrepreneurial activity to economic health and development and social welfare is discussed. Limiting the potential of low- and moderate-income individuals to become self-employed or start a small business restricts the growth and prosperity of a large and increasing potential portion of the U.S. population. One stumbling block to entrepreneurial activity by this population is the lack of access to capital. The percent of small loans made by banks to businesses in their local communities under the Community Reinvestment Act is investigated. Substantial variation was found in the income-based measure of loan bias - that is, whether the share of loans to businesses in low- to moderate-income communities is equal to the share of total low- to moderate-income individuals in each community. Further investigation is required to find out why some low- to moderate-income communities received a larger proportion of small loans than others. Several databases are presented to aid this process