Discrimination in the Small Business Credit Market

47 Pages Posted: 8 Aug 2012 Last revised: 30 Mar 2015

See all articles by David G. Blanchflower

David G. Blanchflower

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER); University of Stirling - Department of Economics

Phillip B. Levine

Wellesley College; National Bureau of Economic Research (NBER)

David J. Zimmerman

Williams College

Date Written: December 1998

Abstract

This paper uses data from the 1993 National Survey of Small Business Finances to determine the extent to which minority-owned small businesses face constraints in the credit market beyond those faced by white-owned small businesses. First, we present qualitative evidence indicating that black- and white-owned firms report similar concerns about the factors that may affect their businesses except that blacks are far more likely to report problems with credit availability. Second, we conduct an econometric analysis of loan denial probabilities by race and find that black-owned small businesses are almost three times more likely to have a loan application denied. Even after controlling for the differences in credit-worthiness and other factors that exist between black- and white-owned firms, blacks are still about twice as likely to be denied credit. A series of specification checks indicates that this gap is unlikely to be largely attributed to omitted variable bias. Third, we conduct a similar analysis regarding interest rates charged to approved loans and find black-owned firms pay higher interest rates as well. Finally, even these results are likely to understate differences in credit access because many potential black-owned firms are not in operation due to the lack of credit and those in business may be too afraid to apply. These results indicate that the racial disparity in credit availability is likely caused by discrimination.

Suggested Citation

Blanchflower, David G. and Levine, Phillip B. and Zimmerman, David J., Discrimination in the Small Business Credit Market (December 1998). NBER Working Paper No. w6840. Available at SSRN: https://ssrn.com/abstract=145108

David G. Blanchflower (Contact Author)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-646-2536 (Phone)
603-646-2122 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Stirling - Department of Economics ( email )

Stirling, FK9 4LA
United Kingdom

Phillip B. Levine

Wellesley College ( email )

106 Central Street
Wellesley, MA 02181
United States
781-283-2162 (Phone)
781-283-2177 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David J. Zimmerman

Williams College ( email )

Williamstown, MA 01267
United States
413-597-2192 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
67
Abstract Views
1,633
rank
335,489
PlumX Metrics