37 Pages Posted: 27 Aug 2007 Last revised: 28 Apr 2009
Date Written: 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.
Keywords: credit availability, discrimination, race, small business, SSBF
JEL Classification: G21, G28
Suggested Citation: Suggested Citation
Cole, Rebel A., Availability of Credit to Small and Minority-Owned Businesses: Evidence from the 1993 National Survey of Small Business Finances (March 9, 1999). Available at SSRN: https://ssrn.com/abstract=1007077 or http://dx.doi.org/10.2139/ssrn.1007077