Document Type


Publication Date


Research Center

Center for Economic Development


In recent years, small-business lending has been discussed widely among the commercial banking community, a reflection of both the growing relative importance of small businesses to the U.S. economy and the fact that large companies have developed the ability to access capital markets directly for debt and equity financing. Although their market share in small-business lending has been eroded in recent years by competition from depository and non-depository financial institutions, commercial banks remain the most frequently used source of financing for small businesses. Accordingly, this paper will focus on commercial banks. At some point during their operating history, most small businesses experience difficulties in obtaining bank financing. Some of these difficulties are due to the inherent financial fragility of small businesses, while others result from banks' traditional underwriting and risk management practices.Beyond these "standard" impediments to financing, small businesses in environmentally-sensitive industries face additional credit barriers, which suggests that the issues surrounding financing for environmental purposes are sufficiently problematic to merit special consideration. Recognizing this situation, the Great Lakes Environmental Finance Center (GLEFC) has undertaken a project to identify barriers to environmentally-related financing (with an emphasis on pollution prevention), and to devise strategies for overcoming such impediments. First, the paper presents a brief picture of small business' current role in the national economy. Second, it summarizes the most important barriers they face in obtaining financing. Finally, the paper discusses recent changes in lending practices that promise to increase the overall availability of credit for small businesses, and explores the implications of these changes for small businesses that seek financing for environmentally-related purposes.