Who Needs Credit and Who Gets Credit? Evidence from the Surveys of Small Business Finances

Abstract

We use data from the Surveys of Small Business Finances to classify small privately held firms into four groups based upon their credit needs. Our results reveal strong and significant differences among each of these four groups of firms. Non-borrowers look very much like approved borrowers. Discouraged borrowers resemble denied borrowers in many respects, but are significantly different along a number of dimensions. Our analysis indicates that about one in three discouraged borrowers would have received credit if they had applied. Denied borrowers differ from approved borrowers across numerous characteristics, as previously documented in the literature. Of particular note, Black-owned firms were denied credit at a far higher rate than firms with owners who were white.

Keywords: availability of credit, capital structure, credit rationing, discouraged, discrimination, entrepreneurship, loan approval, loan denial, small business, SSBF

JEL Classification: G21, G32, J71, L11, M13