Where are small business loans given out the least in Northern California?

What is the Small Business Association?
In the U.S., small businesses make up the majority of all the companies and generate a majority of jobs and economic activity. They are vital to the country’s economic growth and distribution of wealth. America’s small businesses face challenges with access to capital to start and grow their businesses. The Small Business Association (SBA), a federal governmental organization, addresses this issue through financing programs.

The SBA sponsors programs in four areas: finance, education, contracting and disaster relief. On financing, the SBA sponsors loans that are delivered through public/private partnerships with financial institutions. The SBA also funds nonprofits to provide counseling, incubator spaces, and mentoring. SBA assists small businesses in their pursuit of government contracts (by law 23 % of federal government contracts are reserved for small businesses and the SBA helps enforce this goal).

Problem Statement
The Data Science Working Group of San Francisco has partnered with the San Francisco District Office (SFDO) of the Small Business Administration (SBA) to tackle a couple goals.

  1. Identify SBA’s low participation areas to help their office effectively allocate resources
  2. Visualize businesses funded by SBA resources and identify the major success stories

The main data set was provided by the San Francisco District Office and included loan data dating back to the 1990’s. We matched the restaurant names with Yelp’s data set to identify the success stories, which we defined as places that received high ratings.

To tackle the first goal, we categorized low and high participation areas on a map based on ratios of SBA loans to total number of businesses.

If the SBA wanted to tackle lowest participation areas, it should focus on counties in north central california, midway between california and the Nevada border (ratio quintile 1 and 2). This chunk of businesses have the lowest participation rates from .01% to 1.3%. These locations are also relatively low income areas with a mean average gross income (agi) of $30,000-50,000; well below California and the national agi of $77,000 and 65,000, respectively.

The SBA could use these counties to start understanding the characteristics of low participation areas. Beyond the quantitative data, the SBA should gather more qualitative data to answer why these areas have low participation. For example, did the SBA intentionally focus its efforts toward northern california cities? Are there other governmental organizations giving loans to California counties that we have no data on? Do these areas have access to other forms of capital? These are questions the SBA could address before deciding to allocate additional budget towards outreach and marketing in these areas.

After the qualitative research, if the SBA decides to hone in on these areas, they might consider focusing funds on education. Since these are low income areas which correlates with lower education rates, additional education resources may make a bigger impact when coupled with financing. These educational resources include mentoring, incubator spaces, counseling and contracting advice.

If the SBA’s criteria is to focus on business loans that have higher success rates (defined by higher demand), they could look at ratio quantiles 3 and 4 with penetration rates of 2-15%. The majority of these businesses have a mean agi of over $100,000. These are wealthier neighborhoods with people who have higher disposable incomes to spend on growing their businesses or access to other types of financing. In these areas, financing is not the biggest issue as the wealthy have more access to capital.

The counties that make up ratio quantiles 5-6 with penetration rates of 17-20% are areas where the SBA can shift funding from in order to support the low participation areas (assuming a fixed budget). These locations have a higher mean agi and relatively high penetration rate, so diverting funding from these locations to low participation areas may have a greater impact. .