Credit Scoring and the Availability, Price, and Risk of Small Business Credit

39 Pages Posted: 23 Jun 2002

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

W. Scott Frame

Federal Reserve Bank of Atlanta

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business

Date Written: April 2002

Abstract

We examine the economic effects of small business credit scoring (SBCS) and find that it is associated with expanded quantities, higher average prices, and greater risk levels for small business credits under $100,000. These findings are consistent with a net increase in lending to relatively risky "marginal borrowers" that would otherwise not receive credit, but pay relatively high prices when they are funded. We also find that: 1) bank-specific and industrywide learning curves are important; 2) SBCS effects differ for banks that adhere to "rules" versus "discretion" in using the technology; and 3) SBCS effects differ for slightly larger credits.

Keywords: Banks, credit scoring, small business, risk

JEL Classification: G21, G28, G34, L23

Suggested Citation

Berger, Allen N. and Frame, W. Scott and Miller, Nathan, Credit Scoring and the Availability, Price, and Risk of Small Business Credit (April 2002). FRB of Atlanta Working Paper No. 2002-6, FEDS Working Paper No. 2002-26. Available at SSRN: https://ssrn.com/abstract=315044 or http://dx.doi.org/10.2139/ssrn.315044

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

W. Scott Frame

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404 498 8783 (Phone)
404 498 8810 (Fax)

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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