credit discrimination

Doug Henwood dhenwood at panix.com
Tue Mar 16 18:28:36 PST 1999


"Discrimination in the Small Business Credit Market"

BY: DAVID G. BLANCHFLOWER

Dartmouth College

National Bureau of Economic Research (NBER)

PHILLIP B. LEVINE

Wellesley College

DAVID J. ZIMMERMAN

Williams College

Paper ID: NBER Working Paper No. 6840

Date: December 1998

Contact: DAVID G. BLANCHFLOWER

Email: Mailto:blanchflower at dartmouth.edu

Postal: Dartmouth College

6106 Rockefeller Hall

Hanover, NH 03755 USA

Phone: (603)646-2536

Fax: (603)646-2122

Co-Auth: PHILLIP B. LEVINE

Email: Mailto:plevine at lucy.wellesley.edu

Postal: Wellesley College

106 Central Street

Wellesley, MA 02481-8203 USA

Co-Auth: DAVID J. ZIMMERMAN

Email: Mailto:David.J.Zimmerman at williams.edu

Postal: Williams College

Williamstown, MA 01267 USA

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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.

JEL Classification: G21, G28, J71



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