The Effect of Credit Scoring on Small-Business Lending

W Frame, Aruna Srinivasan and Lynn Woosley

Journal of Money, Credit and Banking, 2001, vol. 33, issue 3, 813-25

Abstract: This paper examines the effect of credit scoring on small-business lending for a sample of large U. S. banking organizations. We find that credit scoring is associated with an 8.4 percent increase in the portfolio share of small-business loans, or $4 billion per institution. However, we fail to uncover any specific attributes of bank small-business credit-scoring programs that lead to this increased lending. Overall, we conclude that credit scoring lowers information costs between borrowers and lenders, thereby reducing the value of traditional, local bank lending relationships.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:33:y:2001:i:3:p:813-25

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