Why Have Lending Programs Targeting Disadvantaged Small-Business Borrowers Achieved so Little Success in the United States?

40 Pages Posted: 4 Oct 2010

See all articles by Timothy Bates

Timothy Bates

Wayne State University - College of Urban, Labor, & Metropolitan Affairs; University of Vermont - College of Arts and Sciences

Magnus Lofstrom

Public Policy Institute of California; Institute for the Study of Labor (IZA)

Lisa Servon

affiliation not provided to SSRN

Abstract

Small business lending programs designed to move disadvantaged low-income people into business ownership have been difficult to implement successfully in the U.S. context. Based in part on the premise that financing requirements are an entry barrier limiting the ability of aspiring entrepreneurs to create small businesses, these programs are designed to alleviate such barriers for low net-worth individuals with limited borrowing opportunities. Our analysis tracks through time nationally representative samples of adults to investigate the role of financial constraints and other factors delineating self-employment entrants from nonentrants. Paying particular attention to lines of business most accessible to adults lacking college credentials and substantial personal net worth, our analysis yields no evidence that financial capital constraints are a significant barrier to small-firm creation.

Keywords: self-employment, entrepreneurship, micro-lending

JEL Classification: J15, L26

Suggested Citation

Bates, Timothy and Lofstrom, Magnus and Servon, Lisa, Why Have Lending Programs Targeting Disadvantaged Small-Business Borrowers Achieved so Little Success in the United States?. IZA Discussion Paper No. 5212. Available at SSRN: https://ssrn.com/abstract=1686523

Timothy Bates (Contact Author)

Wayne State University - College of Urban, Labor, & Metropolitan Affairs ( email )

Detroit, MI 48202
United States

University of Vermont - College of Arts and Sciences ( email )

United States

Magnus Lofstrom

Public Policy Institute of California ( email )

500 Washington Street
Suite 800
San Francisco, CA 94111
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 303 (Phone)
+49 228 3894 210 (Fax)

Lisa Servon

affiliation not provided to SSRN ( email )

No Address Available

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