Availability of credit to small and minority-owned businesses: Evidence from the 1993 National Survey of Small Business Finances

Cole, Rebel (1999): Availability of credit to small and minority-owned businesses: Evidence from the 1993 National Survey of Small Business Finances.

Abstract

This article analyzes factors influencing the decisions of prospective lenders to extend credit to small and minority-owned businesses. Using data from a government survey of small businesses, the analysis reveals that prospective lenders (primarily commercial banks)are four times more likely to deny credit to firms owned by African-Americans than to firms owned by Non-Hispanic whites, and are twice as likely to deny credit to firms owned by Asian-Americans than to firms owned by Non-Hispanic whites. These differences in denial rates remain both statistically and economically significant, even after controlling for differences in the type and size of the prospective loan; in the age, experience, education, and creditworthiness of the firm’s primary owner; in the age, size, capital structure, profitability, organizational form, creditworthiness, and industry of the firm; and in the types and length of pre-existing relationships between the firm and its prospective lender. Interestingly, these differences in denial rates are significant only when the prospective lender is a commercial bank.

• Item Type: MPRA Paper
• Institution: DePaul University
• Language: English
• Keywords: bank; credit; discrimination; race; small business; SSBF
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; J - Labor and Demographic Economics > J1 - Demographic Economics > J15 - Economics of Minorities, Races, Indigenous Peoples, and Immigrants ; Non-labor Discrimination