Competition, small business financing, and discrimination: Evidence from a new survey

Using data from the 1993 National Survey of Small Business Finances, we examine some of
the factors influencing differences in small business credit market experiences across demographic
groups. We analyze credit applications, loan denials, and interest rates paid across gender, race
and ethnicity of small business owners. In addition, we analyze data gathered from small business
owners who said they did not apply for credit because they believed that their application would
have been turned down. This set of analyses, in combination with important new information on
the personal credit history of the principal owner, the business credit history of the firm, a rich set
of additional explanatory variables, and information on local bank market structure, helps us to
understand better the sources of observed differentials in the credit market experiences of small
business operators across demographic groups.
Credit market experiences often differ markedly among demographic groups. However, so
do the characteristics of firms and owners. Results of our multivariate analyses show that many of
the factors we consider help to explain the observed differences in credit market experiences.
However, even after controlling for a large number of firm and owner characteristics, substantial
differences often remained. There was also evidence that some of the differentials were associated
with the degree of lender market concentration in the firm’s local area.

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