Racial Disparities in Access to Small Business Credit PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Racial Disparities in Access to Small Business Credit PDF full book. Access full book title Racial Disparities in Access to Small Business Credit by Sabrina T. Howell. Download full books in PDF and EPUB format.
Author: Sabrina T. Howell
Publisher:
ISBN:
Category : Discrimination in commercial loans
Languages : en
Pages : 84
Get Book Here
Book Description
We explore the sources of racial disparities in small business lending by studying the $806 billion Paycheck Protection Program (PPP), which was designed to support small business jobs during the COVID-19 pandemic. PPP loans were administered by private lenders but federally guaranteed, largely eliminating unobservable credit risk as a factor in explaining differential lending by race. We document that even after controlling for a firm's zip code, industry, loan size, PPP approval date, and other characteristics, Black-owned businesses were 12.1 percentage points (70% of the mean) more likely to obtain their PPP loan from a fintech lender than a traditional bank. Among conventional lenders, smaller banks were much less likely to lend to Black-owned firms, while the Top-4 banks exhibited little to no disparity after including controls. We use novel data to show that the disparity is not primarily explained by differences in pre-existing bank or credit relationships, firm financial positions, fintech affinity, borrower application behavior, or racial differences in rates of fraudulent PPP applications. In contrast, we document that Black-owned businesses' higher rate of borrowing from fintechs compared to smaller banks is particularly large in places with high anti-Black racial animus, pointing to a potential role for discrimination in explaining some of the racial disparities in small business lending. We find evidence that when small banks automate their lending processes, and thus reduce human involvement in the loan origination process, their rate of PPP lending to Black-owned businesses increases, with larger effects in places with more racial animus.
Author: Sabrina T. Howell
Publisher:
ISBN:
Category : Discrimination in commercial loans
Languages : en
Pages : 84
Get Book Here
Book Description
We explore the sources of racial disparities in small business lending by studying the $806 billion Paycheck Protection Program (PPP), which was designed to support small business jobs during the COVID-19 pandemic. PPP loans were administered by private lenders but federally guaranteed, largely eliminating unobservable credit risk as a factor in explaining differential lending by race. We document that even after controlling for a firm's zip code, industry, loan size, PPP approval date, and other characteristics, Black-owned businesses were 12.1 percentage points (70% of the mean) more likely to obtain their PPP loan from a fintech lender than a traditional bank. Among conventional lenders, smaller banks were much less likely to lend to Black-owned firms, while the Top-4 banks exhibited little to no disparity after including controls. We use novel data to show that the disparity is not primarily explained by differences in pre-existing bank or credit relationships, firm financial positions, fintech affinity, borrower application behavior, or racial differences in rates of fraudulent PPP applications. In contrast, we document that Black-owned businesses' higher rate of borrowing from fintechs compared to smaller banks is particularly large in places with high anti-Black racial animus, pointing to a potential role for discrimination in explaining some of the racial disparities in small business lending. We find evidence that when small banks automate their lending processes, and thus reduce human involvement in the loan origination process, their rate of PPP lending to Black-owned businesses increases, with larger effects in places with more racial animus.
Author: Sabrina T. Howell
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author: Sabrina T. Howell
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author: Sabrina T. Howell
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
By enabling smaller loans, broader geographic reach, and less human bias in decision-making, process automation may reduce racial disparities in access to financial services. We find evidence for all three channels using a setting where private lenders faced no credit risk but decided who to serve: the Paycheck Protection Program (PPP), which provided loans to small businesses during COVID-19. Black-owned firms disproportionately obtained their PPP loans from fintech lenders, especially in areas with high racial animus. After traditional banks automate their loan application processes, their PPP lending to Black-owned businesses increases. Our findings cannot be fully explained by racial differences in loan application behaviors, pre-existing banking relationships, contemporaneous firm performance, or fraud rates.
Author: Robert W. Fairlie
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
We use confidential and restricted-access data from the Kauffman Firm Survey and matched administrative data on credit scores to explore racial disparities in access to capital for new business ventures. The novel results on racial inequality in startup financing indicate that black-owned startups start smaller and stay smaller over the entire first eight years of their existence. Black startups face more difficulty in raising external capital, especially external debt. We find that disparities in credit-worthiness constrain black entreprenuers, but perceptions of treatment by banks also hold them back. Black entrepreneurs apply for loans less often than white entrepreneurs largely because they expect to be denied credit, even when they have a good credit history and in settings where strong local banks favor new business development.
Author: David G. Blanchflower
Publisher:
ISBN:
Category : Discrimination in consumer credit
Languages : en
Pages : 45
Get Book Here
Book Description
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
Author: Sabrina T. Howell
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
In the Paycheck Protection Program (PPP), private lenders distributed federally guaranteed (and thus risk-free) COVID-19 relief loans to small businesses. Black-owned firms disproportionately obtained their PPP loans from fintech lenders, especially in areas with high racial animus. Automation in lending processes at fintechs plays an important role in explaining this disparity, in part by reducing opportunities for racial discrimination. Consistent with this mechanism, after traditional banks automate their loan application processes, their PPP lending to Black-owned businesses increases. Our findings cannot be fully explained by racial differences in loan application behaviors, pre-existing banking relationships, contemporaneous firm performance, or fraud rates.
Author: Robert W. Fairlie
Publisher: MIT Press
ISBN: 0262260670
Category : Business & Economics
Languages : en
Pages : 253
Get Book Here
Book Description
A comprehensive analysis of racial disparities and the determinants of entrepreneurial performance—in particular, why Asian-owned businesses on average perform relatively well and why black-owned businesses typically do not. Thirteen million people in the United States—roughly one in ten workers—own a business. And yet rates of business ownership among African Americans are much lower and have been so throughout the twentieth century. In addition, and perhaps more importantly, businesses owned by African Americans tend to have lower sales, fewer employees and smaller payrolls, lower profits, and higher closure rates. In contrast, Asian American-owned businesses tend to be more successful. In Race and Entrepreneurial Success, minority entrepreneurship authorities Robert Fairlie and Alicia Robb examine racial disparities in business performance. Drawing on the rarely used, restricted-access Characteristics of Business Owners (CBO) dataset compiled by the U.S. Census Bureau, Fairlie and Robb examine in particular why Asian-owned firms perform well in comparison to white-owned businesses and black-owned firms typically do not. They also explore the broader question of why some entrepreneurs are successful and others are not. After providing new comprehensive estimates of recent trends in minority business ownership and performance, the authors examine the importance of human capital, financial capital, and family business background in successful business ownership. They find that a high level of startup capital is the most important factor contributing to the success of Asian-owned businesses, and that the lack of startup money for black businesses (attributable to the fact that nearly half of all black families have less than $6,000 in total wealth) contributes to their relative lack of success. In addition, higher education levels among Asian business owners explain much of their success relative to both white- and African American-owned businesses. Finally, Fairlie and Robb find that black entrepreneurs have fewer opportunities than white entrepreneurs to acquire valuable pre-business work experience through working in family businesses.
Author: Raffi E. García
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Do racial protests help or hurt access to credit for small businesses? This paper examines the effect of local racial demonstrations, such as Black Lives Matter (BLM) protests, and the subsequent racial justice movement following the death of George Floyd on racial disparities in the Paycheck Protection Program (PPP) loan disbursements. Using difference-in-differences, we find that local racial protests improve credit access for black business owners. We find that social media and public attention after the death of George Floyd amplified the broader BLM mission statement of racial equity, resulting in a positive moderating effect on loan amounts distributed to black owners relative to other racial-ethnic groups. Our findings show that racial implicit and explicit bias diminishes after George Floyd's death with stronger effects in finance occupations.
Author: Robert W. Fairlie
Publisher:
ISBN:
Category : Business losses
Languages : en
Pages : 0
Get Book Here
Book Description
