Availability of Credit to Small and Minority-Owned Businesses: Evidence from the 1993 National Survey of Small Business Finances
Rebel A. Cole
DePaul University - Driehaus College of Business
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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