Business Microloans for U.S. Subprime Borrowers

Fracassi, Cesare; Garmaise, Mark J.; Kogan, Shimon; Natividad, Gabriel

doi:10.2139/ssrn.2157707

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Business Microloans for U.S. Subprime Borrowers

Journal of Financial and Quantitative Analysis (JFQA), 51 (1), 55-83, February 2016

50 Pages Posted: 6 Oct 2012 Last revised: 13 Apr 2016

See all articles by Cesare Fracassi

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management

Shimon Kogan

Reichman University - Arison School of Business; University of Pennsylvania - The Wharton School

We show that business microloans to U.S. subprime borrowers have a very large impact on subsequent firm success. Using data on startup loan applicants from a lender that employed an automated algorithm in its application review, we implement a regression discontinuity design assessing the causal impact of receiving a loan on firms. Startups receiving funding are dramatically more likely to survive, enjoy higher revenues and create more jobs. Loans are more consequential for survival among subprime business owners with more education and less managerial experience.

JEL Classification: G32, L26, M13

Suggested Citation: Suggested Citation

Fracassi, Cesare and Garmaise, Mark J. and Kogan, Shimon and Natividad, Gabriel, Business Microloans for U.S. Subprime Borrowers (2016). Journal of Financial and Quantitative Analysis (JFQA), 51 (1), 55-83, February 2016, Available at SSRN: https://ssrn.com/abstract=2157707 or http://dx.doi.org/10.2139/ssrn.2157707