Availability of Credit to Small and Minority-Owned Businesses: Evidence from the 1993 National Survey of Small Business Finances
Rebel A. Cole
Driehaus College of Business at DePaul University
March 9, 1999
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.
Number of Pages in PDF File: 37
Keywords: credit availability, discrimination, race, small business, SSBF
JEL Classification: G21, G28
Date posted: August 27, 2007 ; Last revised: April 28, 2009
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