Do lenders discriminate against minority and woman entrepreneurs?

Lloyd Blanchard, Bo Zhao and John Yinger

Journal of Urban Economics, 2008, vol. 63, issue 2, 467-497

Abstract: This paper draws on a conceptual analysis of discrimination to improve the methodology for estimating discrimination in small-business credit markets and to provide some evidence about the possible causes of discrimination in these markets. Using a variety of statistical enhancements to existing studies, we find statistically significant evidence of substantial discrimination in loan approval against black-owned and Hispanic-owned businesses in 1998. We also find some hints that this discrimination takes the form of statistical discrimination, driven by lenders' stereotypes about the ability of black- and Hispanic-owned businesses to succeed under some circumstances. Although we find no discrimination, on average, in interest rates on approved loans, we also find that black-owned businesses do face discrimination in interest rates when they borrow from finance companies and businesses, such as mutual fund companies and leasing companies, with a primary mission other than lending. These findings suggest that federal financial regulatory agencies should re-double their efforts to uncover and prosecute lenders who discriminate against black- and Hispanic-owned businesses and that new tools may be needed to find discrimination by firms not well covered by the existing fair-lending enforcement system.

Keywords: Small-business; credit; Lending; discrimination (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (110)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:63:y:2008:i:2:p:467-497

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